Rupee Logs Worst Weekly Fall in Two Months as Trade Turmoil Weighs Heavy

The Indian rupee just wrapped up its roughest week since February, battered by renewed global uncertainty tied to escalating U.S. trade tensions. While the currency slid nearly 0.9% for the week, a weakening U.S. dollar helped soften the blow.

By Friday's close, the rupee ended slightly firmer at 86.04 per U.S. dollar, gaining 0.7% on the day. But the weekly picture tells a more worrying story, as volatile investor sentiment and global risk-off behavior shook most emerging market assets, especially in Asia's forex space.

U.S. Trade Shifts Spark Panic But Also Hurt the Dollar

Investor nerves were frayed this week as U.S. President Donald Trump implemented fresh trade restrictions, setting off a new round of tariff battles. China retaliated swiftly, raising tariffs on American goods to 125%, following the U.S.’s aggressive 145% levy on Chinese imports.

The tit-for-tat has reignited fears of a prolonged trade war, dragging down market confidence globally. But ironically, this hammering of risk assets also hit the U.S. dollar, which fell against nearly all major currencies.

The U.S. dollar index slipped 0.7% on Friday, briefly touching a three-year low, as traders pulled back from dollar-denominated assets. The currency’s decline wasn’t just against emerging markets safe-haven currencies like the Swiss franc and Japanese yen, and even the euro, made strong gains.

“In this environment it is hard to see any near-term revival in U.S. dollar confidence,” said MUFG Bank in a research note, signaling continued headwinds for the greenback.
 

[Related: What is the Dollar Index? | Trade Wars and Currency Impact]

Asian Currencies Climb, Rupee Gets Breather

While the rupee ended the week weaker, it wasn’t all bad news. On Friday, a broad dollar pullback gave most Asian currencies a much-needed breather.

• Offshore Chinese yuan rose 0.1% despite tensions with the U.S.
• Indonesian rupiah, South Korean won, and Philippine peso also firmed.

The Indian rupee, which had touched an intraday high of 85.96, saw its upside capped by importer demand for dollars especially from oil and electronics importers trying to hedge future exposure.

Traders Exit Short Bets, Fed Watch on Pause

As the dollar turned bearish, short rupee positions were squared off rapidly, leading to some recovery. However, traders stayed cautious, citing ongoing uncertainty in both global trade dynamics and Federal Reserve rate expectations.

Meanwhile, dollar-rupee forward premiums softened, reflecting fewer bets on imminent Fed action.

• The 1-year implied yield fell 8 basis points, now at 2.25%.
• This signals reduced expectations of a rate cut in May, though markets remain divided.

What's Next for the Rupee?

Despite Friday’s partial recovery, the outlook remains foggy. While the dollar’s weakness may offer short-term relief, underlying pressures from global uncertainty, oil prices, and capital outflows remain.

With India’s general elections underway and global investors shifting to a more cautious stance, traders expect the rupee to stay under pressure, at least until there’s clarity on trade and rate decisions.

Some analysts warn the rupee may retest 86.50 if the trade war intensifies.

At the same time, stronger-than-expected Indian GDP data or fiscal cues post-election could provide a much-needed floor.

Final Thoughts

The Indian rupee has taken a hit this week its worst in two months caught in the crossfire of a deepening U.S.-China trade war and global market volatility. Still, the dollar’s sharp decline helped prevent steeper losses.

As traders recalibrate around trade dynamics, Fed rate signals, and election outcomes, the rupee’s path forward remains clouded but not without opportunity. Short-term volatility is likely, but savvy traders will be watching forward premiums, oil prices, and institutional flows for cues.

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