Rupee strengthens by 1.10 against dollar amid US-India trade deal optimism

The Indian rupee strengthened by 1.10 against the US dollar on Tuesday (February 3), reflecting renewed optimism in currency markets. Early trading indicated the rupee trading around 90.40/$, marking a notable recovery from recent weakness.

Analysts said the rebound was driven by expectations that the recent trade agreement between India and the United States could boost investor sentiment and encourage foreign portfolio inflows.

The deal has eased high tariffs on Indian exports, removing a key source of uncertainty that had weighed on the currency.

Context for the recent weakness:

The rupee was the weakest Asian currency in 2025, falling nearly 5% over the year and more than 2% in January alone.

Limited foreign inflows and heightened dollar demand from importers had intensified pressure on the currency.

Potential impact of the trade deal:

The removal of tariff-related concerns is expected to improve export competitiveness and reduce policy uncertainty.

Marc Velan, Head of Investments at Lucerne Asset Management, said, “Reducing tariff uncertainty can support near-term gains in the rupee and domestic equities by boosting investor confidence.”

MUFG Bank noted that while inflows have been sluggish, the agreement may provide medium-term support for the currency.

Effect on corporate hedging:

Previously, importers had increased forward dollar purchases to protect against further depreciation, while exporters had delayed hedging, creating an imbalance that amplified pressure on the rupee.

Analysts expect this imbalance to narrow as tariff concerns ease, supporting a healthier demand-supply dynamic in the currency market.

Traders also anticipate a moderation in speculative bets against the rupee, which could reinforce the recovery. The sustainability of the gains will depend on actual foreign inflows and broader market sentiment in the coming days.

-With Reuters inputs