The Indian rupee made a significant move on May 2, 2025, as it appreciated sharply against the US dollar, breaking the 84 per dollar mark for the first time since October 2024. This sudden surge, according to currency experts, was driven by a mix of speculative activity, growing optimism around a proposed India-US trade deal, and anticipation of tariff reforms on key agricultural products.

Indian Rupee Opens Strong, Gains Ground

The day began with the rupee opening at 84.0987, significantly stronger compared to the previous close of 84.4950. It soon strengthened further to trade at 83.9075 against the greenback. The last time the rupee traded below 84 was on October 1, 2024, when it hit 83.8213.

This movement was a 40 paise jump at the opening, indicating robust sentiment in the forex market.

“Rupee opened higher and rose above 84.00 because of rumours of an India US trade deal happening this week and China willingly coming for trade talks with US,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.

He added that there were no significant inflows, but existing long positions were likely unwound, contributing to the rupee's strength.

India-US Trade Talks Boost Market Sentiment

Fueling the rupee’s rally are positive developments in trade talks between India and the United States. Reports suggest that the Indian government is considering lowering customs duties on several agricultural and dairy items such as:

• Cattle feed

• Oats

• Maize

• Edible oils

These discussions are part of a broader bilateral trade agreement (BTA) that is expected to be finalised by autumn 2025.

On April 29, the Indian commerce ministry highlighted that both sides are working towards “early mutual wins,” and that sectoral-level talks will begin at the end of May.

This signals deeper engagement and increased cooperation on trade, a key driver of currency appreciation in emerging markets like India.

Meanwhile, US President Donald Trump also expressed optimism about the talks, stating that negotiations with India are “going great”, hinting that a deal could be struck soon.

What’s Driving the Rupee Rally?

According to currency analysts and market experts, several factors are at play in the recent INR uptrend:

• Positive trade deal rumours with the US and China

• Short covering of long USD positions by forex traders

• Anticipation of foreign investment flows into Indian equities and debt

• US allegedly pushing for a stronger rupee in ongoing trade discussions

Although no major foreign exchange inflows were reported, sentiment remains elevated on the back of trade-related optimism.

Tariff Disputes and Points of Contention

While India appears flexible on easing tariffs on some goods, key sticking points remain. The US has reportedly been pushing India to lower duties on wheat and rice, but India is expected to hold firm on these staples due to domestic food security concerns.

Nevertheless, even partial concessions could be viewed positively by investors and policymakers, potentially unlocking more favourable bilateral trade flows.

Rupee Performance in Perspective

The appreciation on May 2 marks a notable reversal in the rupee’s trend, which has faced persistent pressure in recent months due to:

• Global risk-off sentiment

• High US interest rates

• Elevated crude oil prices

• Weakening exports

But May’s rally could signal a turning point, especially if the proposed trade deal moves forward and macro fundamentals continue to support the rupee.

Outlook for INR Going Forward

Experts say that if the India-US deal gains momentum and foreign capital starts flowing, the rupee may stabilise in the 83.50–84 range or even strengthen further. However, global macroeconomic factors—especially US Federal Reserve policy, geopolitical tensions, and commodity price fluctuations—will continue to exert pressure.

Some points to watch:

• Sectoral negotiations in May between India and the US

• Changes in customs duties on specific agri commodities

• US Fed commentary and dollar index trends

• Capital inflow trends in equity and debt markets

Conclusion

The Indian rupee’s climb below the 84 mark on May 2 has rekindled optimism in the forex market. While the move was partially driven by technical factors and position unwinding, the core driver appears to be optimism over an India-US trade pact.

With negotiations expected to intensify and possible concessions on tariffs coming into play, the rupee may enjoy continued strength—barring global economic shocks.

As always, forex traders and investors will be closely watching the next steps in India’s trade diplomacy, which could prove decisive for the currency’s trajectory in 2025.

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