Rupee Slumps Amid U.S.-India Trade Standoff
The Indian rupee has emerged as one of the worst-performing currencies in 2025, falling 6% against the U.S. dollar to a record low of 91.075, as widening trade deficits, punitive U.S. tariffs, and capital outflows weigh heavily. Investors remain cautious, holding back from re-entering Indian markets until a trade deal with Washington is reached, leaving the rupee vulnerable to further declines.
Measured against a basket of trading-partner currencies, India’s real effective exchange rate has dropped to 96, the lowest in over a decade, signaling potential for a rebound. However, record withdrawals of $18 billion from Indian equities and prolonged trade talks with the U.S. have kept market sentiment subdued. Analysts note that a stable agreement is necessary to restore confidence, even though the rupee currently appears undervalued.
The U.S.-India trade negotiations are expected to continue into early 2026, with India’s Chief Economic Advisor projecting an agreement by March. Meanwhile, economists predict the rupee will remain weak due to high U.S. tariffs, a wide trade deficit, and portfolio outflows. Despite the currency pressure, some analysts see Indian equities as attractive for future investment, with potential gains from improved valuations, rate cuts, and a market rebound expected in 2026.
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