Indian Rupee Strengthens Against US Dollar Amid Trade Pact

Rupee Gains Ground in Forex Market

In Mumbai, the Indian rupee opened at 84.65 against the US dollar, gaining 75 paise from its previous close of 85.38. Analysts predict that the day's trading will fluctuate between 84.50 and 85.25.

The dollar has retained its strength following a landmark trade agreement between the US and China. Under this agreement, the US will reduce tariffs on Chinese imports from 145% to 30% for a period of 90 days, while China will lower tariffs on US goods from 125% to 10% for the same duration. Both nations have committed to establishing a framework for ongoing discussions regarding their economic and trade relations.

Experts suggest that any new developments in geopolitical matters could significantly influence the rupee's trajectory.

In FY25, the rupee traded within a range of 83.10 to 87.6 against the dollar, initially weakening after the US elections and experiencing a 2.4% depreciation over the year due to ongoing foreign portfolio investment (FPI) outflows and a robust US dollar.

Despite these hurdles, the rupee has shown relative stability compared to other global currencies, bolstered by sound government finances, a shrinking current account deficit, enhanced liquidity, and decreasing oil prices, as noted in the NSE’s ‘Market Pulse Report’ for April.

Towards the year's end, a reversal in dollar strength and renewed FPI inflows into debt instruments contributed to a recovery in the rupee, which appreciated by 2.4% in March 2025.

The average annualized volatility of the rupee fell to 2.7% in FY25, making it one of the least volatile currencies among major emerging markets, underscoring India's strong external buffers and proactive foreign exchange management.

However, the rupee is still considered overvalued, with the 40-currency trade-weighted Real Effective Exchange Rate (REER) rising to 105.3. Both the REER and Nominal Effective Exchange Rate (NEER) have gradually moderated since the first half of FY25, indicating a reduction in overvaluation. The one-year forward premium for the rupee has also been decreasing, reflecting shifts in premium dynamics and India's macroeconomic resilience.