India-US trade deal impact: Rupee jumps 1.2% to 90.40 against US dollar. Can it appreciate further?

India-US trade deal impact: The rupee recorded its strongest rise in over three years on Tuesday, February 3, after the US sharply reduced tariffs on Indian products, lifting investor confidence in domestic assets. The Indian currency surged the most since 2021, according to Bloomberg.

The local currency strengthened by 1.2% to 90.40 against the dollar after US President Donald Trump said he would cut the tariff on Indian goods from 25% to 18%. The deal has eased high tariffs on Indian exports, eliminating a major uncertainty that had been pressuring the domestic unit.

The rupee emerged as Asia’s weakest currency in 2025, depreciating nearly 5% over the year and sliding more than 2% in January alone.

Pressure on the currency intensified due to limited foreign capital inflows and strong dollar demand from importers.

“The trade deal removes a major overhang that had weighed on capital flows. Sentiment-driven demand for the INR has strengthened as foreign investors reassess risk,” said Kunal Sodhani, Head of Treasury, Shinhan Bank India.

India-US trade deal impact

Trump revealed the agreement on social media after speaking with Prime Minister Narendra Modi, saying India had committed to stopping purchases of Russian oil and easing trade restrictions on American exports.

“The India-US trade deal is a massive positive, arriving just when we needed it most after a budget that prioritised tactics over populism. With valuations corrected and fundamentals rock-solid, this should draw FIIs back to Indian markets in the short term,” said Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS.

Indian equities and the rupee have been under heavy pressure since Washington imposed tariffs in late August, leaving them among the weakest-performing emerging market assets in 2025 amid record foreign investor withdrawals.

Can rupee appreciate further?

According to Sodhani, longer-term currency direction will continue to be shaped by oil prices, global monetary conditions, geopolitical canvas and India’s broader macroeconomic performance.

“For USDINR broader range to remain between 89.60-91.40 levels. The clouds of a break of 92.00 levels now stay a bit distant,” Sodhani said.

Meanwhile, Anuj Gupta, a market expert, believes that a further appreciation in the Indian currency can be expected in the near-term. “The rupee strengthened by 1.05% against the US dollar today, supported by optimism around the India–US trade deal. It is currently trading at around 90.29, marking a three-week high. Further appreciation is expected, as rising exports could boost demand for the rupee, with the currency likely to test the 89.50–89.00 levels in the near term,” Gupta said.

The recent trade agreement and tariff reduction to 18% open the door for modest appreciation, but the pace and extent will depend on RBI intervention thresholds, given the priority of maintaining export competitiveness, said Anindya Banerjee, Head Currency and Commodity Research, Kotak Securities.

Foreign inflows may improve at the margin, though a sharp shift is unlikely as global investors remain focused on AI, quantum, memory, and data-centre themes, he cautioned. In the near term, he sees support for the rupee at 90 and then at 89.30, with resistance at 91 and 91.50.

(With inputs from agencies)

Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.