Rupee Sees Best Weekly Gain in 3 Years on India-US Trade Deal Hope

The Indian Rupee has recently demonstrated its strongest weekly performance in over three years, primarily attributed to the announcement of a significant trade agreement between India and the United States. This positive momentum was observed in the week leading up to February 6, 2026. The core driver of this appreciation was the conclusion of a trade pact under which the United States, led by President Donald Trump, agreed to reduce tariffs on Indian imports. Initially, these tariffs stood at approximately 50%, but are now set to be lowered significantly to 18%. This reduction is a crucial development aimed at fostering bilateral trade and has injected a notable sentiment boost into the local currency markets. However, the Rupee's trajectory on Friday, February 6, 2026, showed some underlying pressures, as it reversed early gains to close slightly lower against the dollar, settling at 90.70. Earlier in the day, the Rupee had opened stronger at 90.23 against the US dollar. This intraday weakness stemmed from robust dollar demand and the triggering of stop-loss orders on existing Rupee-long positions, indicating that speculative bets were being unwound amidst prevailing currency pressures. Despite this, the currency remained strong on a weekly basis, reflecting the overall positive impact of the trade deal announcement. External Affairs Minister S. Jaishankar confirmed on Thursday, February 5, 2026, that the "historic" India-US trade agreement is in its final stages of detailing and will be completed "very soon." The discussions with U.S. Secretary of State Marco Rubio in Washington D.C. followed President Trump's announcement of tariff reductions. India's Commerce Secretary, Rajesh Agrawal, further indicated that a formal legal agreement for the trade pact is being drafted and is expected to be signed by mid-March 2026. As part of this understanding, while the US plans to implement tariff reductions through executive action, India is expected to lower duties on certain US goods. Additionally, India is anticipated to significantly increase its purchases of American products across various sectors, including energy, technology, and agriculture. There are reports of potential large-scale aircraft orders from Boeing, with an estimated value of up to US$80 billion, as part of this broader trade understanding. However, the specifics of India's tariff adjustments will follow a different legal route, as they are governed by Most Favored Nation (MFN) tariff commitments and require formal authorization. Amidst these trade developments, the Reserve Bank of India (RBI) played a crucial role in maintaining monetary stability. The RBI's Monetary Policy Committee (MPC), under the leadership of Governor Sanjay Malhotra, held its meeting from February 4 to 6, 2026, and unanimously decided to keep the key repo rate unchanged at 5.25%. The central bank maintained a 'Neutral' stance, signalling confidence in a softer inflation outlook and reassuring markets of accommodative conditions. Governor Malhotra acknowledged the India-US trade deal's potential impact on the Rupee, but reiterated that the extent would depend on the specific details of the pact. He also clarified the RBI's long-standing policy of not targeting any specific level for the Rupee, intervening only to curb excessive volatility. Economically, India's foreign exchange reserves have also shown robustness, climbing to $723.8 billion as of January 30, 2026. This provides a strong merchandise import cover of more than 11 months, bolstering the Indian economy's ability to meet external financing requirements comfortably. This strong reserve position, coupled with the optimism surrounding the trade deal, has contributed to the Rupee's stability despite global uncertainties. Historically, the USDINR exchange rate reached an all-time high of 92.29 in January 2026, with the Rupee weakening by 0.82% over the past month and 3.22% over the last 12 months (as of February 6, 2026). It is worth noting a controversial claim by US President Donald Trump, who stated in a social media post that Prime Minister Narendra Modi had agreed to "stop buying Russian oil, and to buy much more from the United States and, potentially, Venezuela." This claim has stirred political controversy within India, with opposition parties accusing the government of succumbing to US diktats on energy purchases. However, this particular aspect is distinct from the immediate positive impact of the tariff reduction on the Rupee's performance. Overall, while the Rupee experienced some intraday fluctuations, the overarching sentiment from the US-India trade pact propelled it to its best weekly performance in over three years, underscoring the significant positive market reaction to this bilateral economic development. The full implications of the deal will unfold as its details are finalized and implemented over the coming weeks.

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