Indian Rupee Surges After US-India Trade Deal Announcement

The Indian rupee bounced back sharply on Tuesday after US President Donald Trump announced the reduction of reciprocal tariffs on Indian goods to 18%. The domestic currency rose 1.36% to 90.27 against the dollar. This is the best single-day gain since December 2018. “We have long argued the trade deal would be a game-changer. The rupee at 92 was more than what your fundamentals warranted and it was purely sentiment-led overshooting,” said Kanika Pasricha, chief economic advisor, Union Bank of India. She added that the trade deal has now put a lid on that overshoot, and the rupee has returned to the 90 level. “Overall, this is great news for the currency market,” she said. According to Nomura, the positivity from the US-India trade deal announcement is likely to provide some short-lived support for rupee. The RBI FX reserve accumulation, the US product purchases and global risk markets will likely continue to weigh on the currency.. Portfolio inflows may be short-lived, as we were observing a rotation out of India even before Trump’s tariffs on India, it said. The rupee has been under significant pressure in FY26 falling by over 7%. In fact, the rupee breached the 92 level for the first time in the last week and hit a record low of 92.02 during intraday on January 29. However, today’s movement helped the currency recoup some of the lost ground. This made the rupee the best performer compared to other Asian currencies. This is followed by Malaysian ringgit rising at 0.34% and Indonesian rupiah at 0.19%. However, the rupee continues to be the worst performer in FY26. The rupee has been under pressure since last January, when the Trump regime began. Uncertainties over the trade deal and persistent outflows, along with higher metal prices continued to put pressure on the rupee afterwards. Though rupee saw a strong rally on Tuesday, currency experts and traders said further rally will be limited on account of the RBI’s reserve accumulation. While this stability could attract short-term inflows, analysts note that sustained long-term investments will depend on other broader factors too. They await more details of the trade deal to get better clarity. “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 of currency and commodity research at Kotak Securities. He believes that foreign inflows may improve at the margin, though a sharp shift is unlikely as global investors remain focused on AI, quantum, memory, and data-center themes. The RBI net sold $ 49.5 billion in FX reserves in 2025 and has a short forward book of $ 62.4 billion as of end-December and will likely replenish it on any dips, Nomura report added. Guara Sengupta, chief economist at IDFC FIRST Bank, said that the rupee depreciation in FY27 should normalise, unlike the 6% pace we saw recently. She expects the currency to trade in the range of 90-91 in the near-term, with the RBI likely intervening by buying dollars if it dips below 90 to bolster forex reserves.