Indian Rupee Strengthens, Posts Best Gain in Over Three Weeks

Local Currency Appreciates Over 30 Paise Amid Easing Dollar Index

The Indian rupee posted its biggest single-day gain in over three weeks on March 5, 2025, appreciating over 30 paise to close at 86.9675 against the US dollar. This marks the strongest performance since February 11, 2025, when the rupee had surged by 65 paise.

The currency recovered sharply from an intraday low of 87.23, driven by strong custodial inflows, a weakening dollar index, and reduced concerns over global trade tensions.

Key Market Highlights:

• Indian rupee appreciated over 30 paise, ending at 86.9675 per US dollar.
• Biggest single-day gain since February 11, 2025, when the rupee had risen by 65 paise.
• Dollar index weakened, falling to 105.061 from the previous session’s 105.743.
• Market expectations of U.S. Federal Reserve rate cuts weighed on the greenback.
• Trade tariff concerns eased, supporting emerging market currencies.

Rupee Gains as Dollar Weakens Amid Economic Uncertainty

Weakening Dollar Index Provides Support

The dollar index, which tracks the U.S. currency against six major global peers, saw a notable decline, falling to 105.061 at the close of the session, compared to 105.743 in the previous session. The index has eased significantly from Monday’s high of 106.743, as concerns over slowing U.S. economic growth and trade tariffs weighed on the greenback.

Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, noted:

“Constant custodial flows ensured the rupee, which started at a low of 87.23, closed at 86.9550. This paves the way for the currency to strengthen further towards 86.50, and if there is no further escalation in trade tariff wars, possibly towards 86.00 in March 2025.”

Federal Reserve’s Dovish Tone Fuels Market Sentiment

Adding to the dollar’s weakness were dovish remarks from a Federal Reserve official, who acknowledged growing economic uncertainty and hinted at a potential adjustment in monetary policy. The official stated that the Fed’s current policy stance remains restrictive and could be modified as needed to support growth.

This reinforced market expectations of a possible rate cut, further pressuring the U.S. dollar and boosting demand for emerging market currencies like the Indian rupee.

Trade Tariff Concerns Ease, Supporting Rupee Strength

Geopolitical and Trade Developments

Recent trade developments have also contributed to the rupee’s strength. Investors had been wary of new U.S. tariffs on Canada, Mexico, and China, but concerns over their economic impact have outweighed any potential dollar-supportive effects.

As a result, risk appetite improved, leading to higher inflows into emerging markets, particularly India. This played a role in strengthening the rupee against the U.S. dollar.

Outlook: Can the Rupee Continue Its Upward Momentum?

Key Factors to Watch

While the rupee’s strong performance on March 5 signals positive momentum, several factors will influence its future trajectory:

1. Global Trade Tensions: Any further escalation in tariff disputes could limit rupee gains.
2. U.S. Federal Reserve Policy: If the Fed signals more aggressive rate cuts, the dollar could weaken further, supporting the rupee.
3. Crude Oil Prices: India’s dependence on oil imports means higher crude prices could put downward pressure on the rupee.
4. Foreign Institutional Inflows (FIIs): Continued inflows into Indian equities and bonds would provide additional support to the currency.

Market Expectations for the Rupee

Traders and analysts anticipate that if current trends persist, the rupee could test levels around 86.50 in the coming weeks. However, any unexpected global economic shocks or policy changes from major central banks could alter this trajectory.

Conclusion

The Indian rupee’s sharp appreciation on March 5 highlights the impact of global macroeconomic trends, dollar weakness, and trade policy developments. As investors weigh future risks and opportunities, the rupee’s next moves will largely depend on Federal Reserve signals, trade negotiations, and foreign investment flows into Indian markets.