Donald Trump tariff woes keep rupee near record low despite weak dollar

The rupee is hovering near record lows against the US dollar despite a sharp slide in the greenback this year. The domestic currency has fallen 2.3 per cent so far this calendar year, even as the dollar index — which tracks the greenback against six major peers including the euro, Japanese yen, British pound, Swiss franc, Canadian dollar and Swedish krona — has dropped 9.53 per cent. 

According to market participants, the rupee has stayed under pressure despite the weaker dollar as subdued capital inflows and external headwinds weigh on investor sentiment. Recent US tariff hikes of up to 50 per cent on Indian exports have heightened trade tensions, dented investor confidence, and spurred foreign portfolio outflows. 

 

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“It is only the tariffs, which is a concern right now. Otherwise, we (the rupee) typically weaken by 1 per cent to 2 per cent in a year. So, whatever excess weakness has happened is because of tariffs. We are expecting FY26 to close at an average rate of 87 per dollar,” said Abhishek Goenka, chief executive officer at IFA Global. 

Higher tariffs threaten India’s export earnings, curbing forex inflows and thus boosting dollar demand in the local market. 

Additionally, the rupee lost carry trade appeal after the Reserve Bank of India unexpectedly cut its policy rate by 50 basis points in June, a move that reduced forward premiums and left the currency more vulnerable to external shocks. 

Against the euro and pound, the rupee has dropped 12 per cent and 7 per cent, respectively, this year. Analysts point to a shift of global capital toward developed markets, which are trading at record highs. Foreign portfolio investors have sold a net ₹10,147 crore of equities in this month (until Monday). 

“The dollar index has softened, which means the dollar has weakened against other currencies like the euro and pound in the basket because of tariffs,” said the treasury head at a private bank. “The rupee is under pressure because of the continuous outflow from equities,” he added. 

In early 2025, the euro and pound rallied as concerns over the US economic outlook prompted investors to rotate into European assets. The rupee hit an all-time low of 87.95 per dollar on February 10, before rebounding about 2.5 per cent by early July to 85.59 on improved trade sentiment, portfolio inflows and reduced speculative positioning. 

But renewed tariff worries, sustained capital outflows, and weakening sentiment in August pushed the rupee back toward its lows, trading between 87.80 and 87.88. RBI intervention in spot and non-deliverable forwards markets has so far capped losses below the 88 mark, according to market observers. 

On Monday, the rupee closed at 87.66 per dollar, unchanged from Friday. 

RBI data show the rupee’s real effective exchange rate (REER) stood at 100.36 in June, against 101.12 in May. The REER adjusts the nominal effective exchange rate for inflation differentials with major trading partners, with values above 100 indicating relative appreciation that can erode export competitiveness. 

The central bank’s intervention has come at a cost. Foreign exchange reserves fell $9.3 billion to $688 billion in the week ended August 1, the steepest weekly decline of 2025 and the biggest since November 2024. Of that, $6.9 billion came from spot market sales, while revaluation losses accounted for $2.1 billion.