Rupee Crosses 90 Against Dollar Amid US-India Trade Deal Uncertainty and FPI Outflows

Indian Rupee Slips Below 90 Against the Dollar Amid Trade Uncertainty and FPI Outflows

The Indian rupee continued its sharp decline, crossing the 90-mark against the US dollar for the first time on Wednesday, hitting a record low of 90.16. This free-fall is attributed to a combination of factors, including uncertainty surrounding the US-India trade deal, persistent equity selling by foreign portfolio investors (FPIs), and limited supply of the US dollar in domestic markets. The rupee opened at 89.96, slightly lower than the previous close of 89.97, and was trading at 90.12 against the greenback by mid-morning. In the current year, the Indian currency has depreciated by approximately 4.4%, reflecting the cumulative impact of these pressures.

Anindya Banerjee, Head of Commodity and Currency at Kotak Securities, noted that lingering uncertainty over the Indo-US trade deal is keeping market sentiment fragile. FPI outflows from equities and early signs of unwinding of Japanese yen carry trades are adding additional pressure on the rupee. The domestic equity market has witnessed sustained selling from overseas investors throughout much of 2025. So far this calendar year, FPIs have sold shares worth ₹1.48 lakh crore. In just the first two days of December, they have offloaded equities totaling ₹4,335 crore, further intensifying pressure on the currency.

The Reserve Bank of India (RBI) has been active in the forex market to moderate the rupee's decline, although its interventions have been limited. Analysts noted that while the RBI is focused on managing rupee volatility, it is not defending any specific exchange rate level. The slide past the 90 mark has led to rising hedging costs. Forward premiums have surged as corporates and leveraged traders rush to secure protection against further depreciation. The one-year USD/INR forward premium rose by 7 basis points on Tuesday, accumulating over 12 basis points in just three trading sessions. Meanwhile, the one-month forward tenor spiked to a seven-month high of nearly 19.5 paise.

Dipti Chitale, CEO of Mecklai Financial Services Pvt Ltd, explained that the movement reflects a combination of genuine hedging demand and expanding speculative positions, fueled by growing perceptions that the RBI may allow a deeper adjustment after the currency broke below the previously defended 88.80 level. The depreciation of the rupee has also widened the India–US 10-year yield spread to nearly 250 basis points, the largest in almost a year. Investors are seeking higher compensation for currency risk as foreign appetite softens amid tariff uncertainties and a heavy domestic bond-supply calendar.

According to Madan Sabnavis, Chief Economist at Bank of Baroda, while a weaker rupee may marginally benefit exporters by making their goods more competitive in international markets, it is unfavorable for importers and could add to inflationary pressures. The rupee’s depreciation could increase the cost of imported goods, including essential commodities and crude oil, which may affect domestic inflation.

In summary, the Indian rupee’s decline below the 90 mark reflects a complex interplay of global and domestic factors. Trade deal uncertainties, persistent FPI selling, and limited dollar supply are the primary drivers, compounded by investor caution and currency market speculation. RBI’s interventions have provided temporary relief but have not halted the slide. The rise in hedging costs and forward premiums indicates heightened risk management by market participants, while the widening India-US yield spread underscores the growing caution among international investors. Though exporters may gain from a weaker rupee, the overall impact on importers and inflation poses challenges for the domestic economy. The current scenario highlights the fragile state of market sentiment and the vulnerability of the rupee to both global and domestic pressures, emphasizing the need for careful monitoring and potential policy responses to stabilize the currency in the near term.