Rupee hits 5-month low after Trump's tariff threat, logs 0.7% drop

Rupee falls 60 paise to 87.42 per dollar after Trump announces 25% tariff and penalty; FPI outflows, Fed policy outlook, and rising dollar add pressure

The rupee on Wednesday depreciated 0.7 per cent against the US dollar, its sharpest single-day fall in over two and a half months, after US President Donald Trump suggested imposing a 20-25 per cent tariff on India. 

After market hours, Trump confirmed a 25 per cent tariff effective from August 1, along with an unspecified penalty for buying oil and arms from Russia.  The Indian currency depreciated 60 paise to close at 87.42 per dollar, its lowest level since February 28. 

 

So far in July, the rupee has declined 1.9 per cent and is down 2.12 per cent in calendar year 2025. It is now on track for its worst monthly fall show since September 2022, when it weakened 2.32 per cent. 

 

The tariff and penalty announcements are expected to keep the rupee under pressure. The Reserve Bank of India (RBI), in the past, had intervened in the foreign exchange market to curb undue volatility, but dealers said the central bank was not seen intervening on Wednesday.  The country’s foreign exchange reserves, at $695 billion, acts as a cushion against any such volatility.

“The tariff rate is higher than expected. The market was expecting a rate lower than 20 per cent, which would have given us a distinct edge over our Asia-Pacific peers,” said Abhishek Goenka, founder and chief executive officer of IFA Global. 

“Moreover, there is uncertainty around the penalty that would be imposed for procuring crude from Russia. This will likely keep markets on the edge, we may see the rupee continue weakening. Implied rupee spot is already close to all-time lows in NDF (non-deliverable forward),” Goenka added. 

Adding to the pressure are persistent outflows from foreign portfolio investors (FPIs) in the Indian equity markets. Analysts said global investors are increasingly rotating capital into developed markets, which are currently trading at record highs.

“The breaching of the psychological level of 87, coupled with a technical breakout, spurred greater dollar demand from importers and triggered short covering. Following this substantial rally since the start of the month, the immediate support level for spot USD-INR has shifted to 87, while the resistance is now seen at 87.70,” said Dilip Parmar, senior research analyst at HDFC Securities. 

The rupee is near its all-time closing low of 87.58 per dollar, recorded on February 6. Just days later, on February 10, it had touched an intraday low of 87.95. 

Meanwhile, the US dollar continues to strengthen, marking its best monthly performance in 2025 so far. On Wednesday, however, it dipped slightly by 0.05 per cent to 98.83. 

“The US Federal Reserve will on Thursday announce its interest rate decision and market will trade in accordance with it. FPIs are also sellers in the market keeping the pressure on the rupee up,” said Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors.