The Indian rupee slipped past the 87 per dollar mark for the first time on Monday, February 3, weakening from Friday’s close of 86.61. The decline comes amid heightened global trade tensions triggered by fresh tariffs imposed by U.S. President Donald Trump on imports from Mexico, Canada, and China.
Trump’s executive orders have slapped a 25% tariff on most goods from Mexico and Canada and a 10% levy on Chinese imports. In response, Mexico and Canada announced retaliatory measures, while China warned of potential counteractions. This escalating trade conflict has rattled currency markets globally, putting pressure on emerging market currencies like the rupee.
Adding to the rupee’s woes, the offshore Chinese yuan—closely tracked by rupee traders—fell 0.54% to 7.3585 per dollar, reflecting the broader strain on Asian currencies. Meanwhile, the U.S. dollar strengthened against major currencies, supported by rising U.S. Treasury yields.
“If the tariff war escalates further, the rupee could face additional downside pressure,” said Dilip Parmar, FX research analyst at HDFC Securities, in a note quoted by Reuters.
Market participants are now turning their attention to the Reserve Bank of India’s (RBI) monetary policy decision scheduled for Friday, February 7. The RBI is widely expected to cut interest rates by 25 basis points to support growth. Bond markets are also in focus, with the benchmark 10-year yield closing at 6.70% on Friday, slightly lower for the week. Traders anticipate yields to fluctuate between 6.62% and 6.74% ahead of the RBI’s announcement.
On the fiscal front, the government has set a lower fiscal deficit target of 4.4% of GDP for FY26, down from 4.8% in the current year. However, it has increased gross borrowing to ₹14.82 lakh crore for the next fiscal, up from ₹14.01 lakh crore this year.
“Maintaining fiscal consolidation while offering tax relief is a positive signal and could improve India’s credit rating outlook,” said Mahendra Kumar Jajoo, CIO – Fixed Income at Mirae Asset Investment Managers India. He expects the RBI to maintain an accommodative stance to support the economy.
As global trade tensions linger and domestic fiscal policies evolve, the rupee’s trajectory will depend on both the RBI’s policy cues and external market developments.