Rupee finds its footing after India-US trade deal, outlook turns less bearish

Mumbai: The Indian rupee snapped its recent losing streak on Tuesday, posting a 1.4% rise – after the announcement of the landmark US-India trade agreement, as investors bet that the deal would ease policy uncertainty and revive foreign capital inflows.

In a big single-day gain, the rupee sprinted from 91.5163 to the US dollar at close of Monday to 90.2725 per dollar on Tuesday’s close, a rise of 124 paise or ₹1.2438, according to data by Bloomberg. In intraday trading, the Indian currency hit its highest level at 90.0500 since 14 January.

Market participants believe the trade deal with the US will stabilize the rupee near the 90-per-dollar mark in the near term, and slow the pace of depreciation in the next financial year.

The agreement, announced by US President Donald Trump on Monday after a call with Prime Minister Narendra Modi, reduces tariffs on Indian goods to 18% from as high as 50% and removes penalties linked to India’s purchase of Russian crude.

Welcoming the agreement, Dhiraj Relli, managing director and CEO of HDFC Securities said, “At 18%, India’s tariff rate is now lower than that of several major Asian trading partners, supporting growth in labour-intensive and export-oriented sectors such as textiles, gems and jewellery, and engineering goods.”

Market participants said the agreement removes a chunk of policy and tariff uncertainty that had triggered record equity outflows last year, making the Indian unit the worst-performing Asian currency in 2025, down 6% for the year and 2% last month.

“The US-India trade deal will improve sentiment, so in the near term, the rupee will stay closer to the 90 levels. It may even briefly touch below but it will definitely improve sentiment,” said Gaura Sengupta, chief economist at IDFC First Bank.

According to Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services said, after the kneejerk reaction on Tuesday, 92 looks like a peak. Broadly, 89-91 looks like a reasonable band in the near term.

“With the trade deal, there is a possibility of further rupee appreciation from here on,” Bhansali said. “We will see the impact of this announcement in the coming weeks, but after that the rupee will start consolidating again.”

While the long-awaited trade deal is expected to improve sentiment and inflows by foreign portfolio investors (FPIs), the currency is still seen depreciating, albeit at a slower pace, as the earlier depreciation was driven less by trade fundamentals and more by capital flows.

“The major issue for INR and why the depreciation has been is because of capital outflows, and the current account was never an issue because India front-loaded its exports to the US,” Sengupta said. For the April-December period, India’s exports to the US rose 10% on year, cushioning the current account despite global trade disruptions.

This has come as foreign direct investment slowed as dollar-adjusted returns on Indian investments declined. However, the trade deal is expected to support capital inflows and improve the balance of payments position.

“The BoP which was a large deficit in FY26 should become a very small negative in FY27… we still expect that you will have a much more moderate or gradual pace of depreciation,” Sengupta said, pegging that FY27 depreciation at around 3%, compared with expectations of 6% earlier.

Meanwhile, market participants will also eye the Reserve Bank of India’s Monetary Policy Committee's decision, to be announced on Friday after its 4-6 February meeting.

The MPC is likely to keep policy rates unchanged, signalling a prolonged pause after aggressive front-loaded easing over the past year, even as liquidity conditions remain tight and bond yields are elevated.

A Mint poll of 10 economists shows nine expecting a pause at 5.25%, while one anticipates a 25-basis-point cut to 5.00%.

The central bank is also expected to maintain its ‘neutral’ stance, which allows it to move in either direction.