Rupee rises against dollar but falls against euro, pound amid trade deals

The rupee has been caught in a swirl of trade negotiations between the US and other major economies such as the UK and China, even as the US Fed considers rate cuts later this year

While the rupee has held its ground against the US dollar in the current calendar year with a 0.07 per cent appreciation so far, it has depreciated significantly against the euro and the pound. The local currency has depreciated by 7.01 per cent, and 5.70 per cent against the euro and pound, respectively, since January 1, 2025, as both those units strengthened significantly against the greenback in the same period.

 

The euro has appreciated by 8.18 per cent against the dollar in the current calendar year so far, while  the pound strengthened by 6.32 per cent in the same period against the greenback.

 

The dollar index which measures the strength of the US dollar against a basket of currencies has fallen by 7.32 per cent in the current calendar year. On Thursday it settled at 100.66.

 

“Euro and pound, they appreciated a lot against the dollar because of the trade tariffs,” said V R C Reddy, head of treasury at Karur Vysya Bank. “However, there have been some positive developments and the dollar index is rebounding, and there is optimism around the US and China trade,” he added.

 

On May 8, the US and the UK signed a trade agreement aimed at deepening economic ties by reducing tariffs and expanding market access to each other. The deal cuts US tariffs on up to 100,000 British car imports annually and removes duties on UK steel and aluminum, while the UK agreed to limited, tariff-free imports of US beef and ethanol.

 

The agreement was welcomed by markets, with the British pound appreciating against the greenback as investor sentiment improved on the back of stronger UK export prospects and renewed confidence in the UK economy. However, the dollar saw limited upside, as expectations of Fed rate cuts continued to weigh on its performance despite the trade breakthrough.

 

“The dollar is overvalued and there is room for the euro and pound to rise further,” said a market participant. “If we look at the data, the US Federal Reserve is expected to go for a rate cut, which means the dollar index might again fall below 100,” this person added.

 

In early 2025, Europe’s major currencies strengthened significantly against the US dollar as growing concerns over the US economic outlook prompted investors to shift portfolio allocations toward Europe and the UK.

 

Additionally, the US-China trade truce initially lifted the dollar index, but the optimism quickly faded. Weaker-than-expected US economic data this week reinforced expectations that the Federal Reserve will likely cut interest rates more than three times this year, pushing the dollar index lower.

 

In a surprise breakthrough, the US and China agreed on Monday to roll back tariffs on each other’s goods for an initial 90-day period, marking a major step toward de-escalating the prolonged trade war and lifting global market sentiment.

 

US Treasury Secretary Scott Bessent had announced on Monday that the United States and China have agreed to a 90-day pause on trade measures, following weekend negotiations with Chinese officials in Geneva. The deal includes a mutual reduction of tariffs during this period, offering a temporary reprieve from escalating trade tensions between the world’s two largest economies.