Will Trump’s tariffs halt the rupee’s sprint against dollar?, ET BFSI

The Indian rupee, which has staged a exceptional rebound in 2025, may face headwinds as the potential for new tariffs from the US looms. The rupee has gained 2.1% thus far this month, outperforming most of its Asian friends and reclaiming ranges final seen on the finish of 2024. Nevertheless, with US tariffs slated to be launched on April 2, this upward trajectory might come beneath stress.

The rupee’s power has been supported by persistent dollar inflows linked to inter-company borrowings, repatriation of company income, and overseas funding in Indian bonds and equities. These components, mixed with a weaker US dollar pushed by dovish indicators from the Federal Reserve and world financial uncertainty, have created a beneficial surroundings for the rupee, specialists say.

A weaker greenback has usually eased stress on rising market currencies, together with the rupee, as capital flows shift towards higher-yielding belongings. Nevertheless, the greenback’s slide has been pushed by components that would reverse if geopolitical and trade tensions escalate.

Tariffs may disrupt momentum

Donald Trump’s proposed tariffs have reignited fears of a global trade slowdown. If these tariffs take impact, they might undermine US development and set off a flight to safe-haven belongings, boosting the greenback. This state of affairs would improve stress on rising market currencies, together with the rupee, which has benefited from a weaker greenback surroundings.

The Reserve Bank of India (RBI) has been actively managing rupee volatility, conducting important dollar-rupee buy-sell swaps over the previous month. Whereas these interventions have stabilised the forex, a chronic commerce battle may complicate efforts to keep up rupee stability, doubtlessly resulting in capital outflows and renewed stress on the forex.

Past India, different emerging markets may expertise a surge in volatility if commerce tensions escalate. Whereas a weaker greenback has usually been optimistic for rising markets, the chance of a commerce warfare may offset these positive aspects by slowing world development and decreasing demand for exports.

Outlook hinges on commerce negotiations

The rupee’s trajectory now is dependent upon the end result of US tariff negotiations and their affect on world commerce. If tariffs escalate, investor sentiment might shift rapidly, driving renewed demand for the greenback and reversing the positive aspects that rising market currencies, together with the rupee, have loved. For now, the rupee’s rally faces a essential take a look at as the worldwide commerce surroundings stays unsure.