Rupee breaches 90-mark against dollar: US-India trade deal uncertainty, FPI outflows weighing on sentiments

So far in the current calendar year (January 1 to December 3, 2025), the currency has fallen  by around 5.35 per cent compared to 2.88 per cent depreciation in 2024 and 0.57 per cent in 2023. It weakened sharply by 11.3 per cent in 2022, after a 1.74 per cent decline in 2021.

Wednesday’s fall in the currency was fuelled by the growing uncertainty around the Indo–US trade deal, which has supported the US dollar and created caution in emerging market (EM) currencies, including the rupee, said Anindya Banerjee, Head Commodity and Currency, Kotak Securities.

The rupee came under pressure after a wave of stop-losses was triggered above the 90 level, especially from leveraged traders and option sellers who were defending that zone.

Steady importer demand, particularly from sectors like oil, metals, and electronics, which continues to absorb available dollar liquidity, further weighed on the currency, Banerjee said.

Persistent selling by overseas investors in the domestic equity market also contributed to the rupee depreciation. FPIs have sold Rs 1.52 lakh crore of shares so far in calendar year 2025. In the first three days of December, they have offloaded Rs 8,369 crore equities.

Forex market participants said the Reserve Bank of India (RBI) was active in the market to moderate the fall in the rupee, though its intervention was limited. “The RBI has consistently stated its focus is on managing rupee volatility. It intervened in the market today but did not defend any specific exchange rate level,” said an analyst.

 Impact of rupee’s slide

The rupee’s slide beyond the 90 mark has increased hedging costs, with forward premiums jumping as both corporates and leveraged traders rushed to secure protection against further weakness. The one-year USD/INR forward premium rose another 7 basis points (bps) on Tuesday — over 12 bps in just three sessions. The one-month tenor spiked to a seven-month high near 19.5 paise.

“The move reflects a mix of genuine hedging demand and expanding speculative positions, underpinned by the growing perception that the RBI may allow a deeper adjustment after the currency broke below the previously defended 88.80 level,” said Dipti Chitale CEO Mecklai Financial Services Pvt Ltd.

The depreciation has also widened the India–US 10-year yield spread to nearly 250 bps, the largest in almost a year. Investors are demanding a higher cushion for currency risk as foreign appetite softens amid tariff uncertainty and a heavy domestic bond-supply calendar, she said.

According to Bank of Baroda’s Chief Economist, Madan Sabnavis, a depreciating rupee will help exporters at the margin but is not good for importers or inflation.

 Rupee to remain under pressure

Nilesh Shah, Managing Director, Kotak Mahindra AMC, said: “It is very difficult to figure out whether the rupee will bottom out at 91 or 92 or 93, but we think a depreciation of 2-3 per cent of the rupee is needed to maintain our export competitiveness. The REER (Real Effective Exchange Rate) model also suggests 2-3 per cent depreciation every year.”

With the RBI policy due on December 3, markets will look for cues on whether the fall will stabilise. Technically, the rupee remains oversold and needs to reclaim 89.80 to recover meaningfully, said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.