The Indian rupee breached the 84-per-dollar level on Friday, May 2, 2025, marking its strongest performance since October 2024. In early trading, the rupee soared to a peak of ₹83.77, a sharp appreciation of 77 paise from its previous close of ₹84.54. This nearly 2% gain in a week has made it one of the best-performing Asian currencies over the past few sessions.

This rally comes after weeks of relatively muted movement in the forex market, surprising both traders and analysts. The last time the rupee had seen such a significant one-week surge was in November 2018.

Foreign Inflows Fueling the Rally

One of the primary catalysts behind the rupee’s strength has been persistent buying by foreign institutional investors (FIIs). For 11 consecutive trading sessions, FIIs have poured money into Indian equities—the longest streak in two years. On Wednesday (April 30) alone, they bought shares worth ₹50.57 crore.

Foreign banks were also reported to be offering dollars, most likely on behalf of custodial clients, which further supported the rupee.

Boost From Strong Domestic Data

The rally wasn’t just driven by foreign flows. Domestic macroeconomic indicators also supported the rupee’s climb:

• April GST collections soared to an all-time high of ₹2.37 lakh crore, registering a 12.6% year-on-year growth.

• The BSE Sensex climbed 722 points to 80,965, while the Nifty rose 204 points to 24,538, reflecting improved investor sentiment.

These strong economic indicators bolstered confidence in the Indian economy and the rupee.

MUFG Revises Forecast for 2025

Reflecting the shift in market sentiment, MUFG—one of Asia’s largest banks—revised its rupee forecast for 2025. Previously, MUFG projected the rupee to end the year at 87 per dollar. It now sees it ending at 84, citing factors such as:

• Weakening global dollar

• Better-than-expected tariff outcomes for India, especially in the scenario of a second Trump administration

• The rupee’s growing strength compared to other Asian currencies

In its note, MUFG remarked, “We now forecast rupee to outperform Asian FX.”

Global Market Movements Supporting Rupee

The US Dollar Index fell by 0.27% to 99.97, helping boost emerging market currencies, including the Indian rupee. A weak dollar typically makes Indian assets more attractive, drawing in capital flows.

Meanwhile, Brent crude inched up 0.55% to $62.45 per barrel, but analysts believe this modest rise has not yet affected the rupee's momentum.

Geopolitical Risks Could Reverse Gains

While the rally has been welcomed by the market, analysts have issued caution. Tensions between India and Pakistan, particularly around Kashmir, could quickly reverse the rupee’s gains.

According to Amit Pabari, MD of CR Forex Advisors, “The rupee’s 2% March rise was its best since November 2018. But geopolitical risks could trigger fresh volatility.”

Any significant escalation could drive safe-haven demand for the dollar, pulling the rupee back.

Forex Market Closure and Preceding Movements

It’s important to note that the forex market remained shut on Thursday (May 1) due to Maharashtra Day, adding to Friday’s increased trading momentum.

On Wednesday (April 30), the rupee had already made a substantial gain of 42 paise, closing at ₹84.54. This built up optimism going into the final trading day of the week.

What’s Next for the Rupee?

The near-term outlook for the rupee remains positive, given the following factors:

• Continued FII buying streak

• Weakening dollar index globally

• Strong domestic economic indicators like GST revenue and equity performance

However, traders are advised to watch out for:

• Sudden rise in oil prices

• Escalation of geopolitical tensions in South Asia

• US Fed policy commentary and data releases

Will RBI Intervene?

With the rupee gaining rapidly, market participants are also speculating whether the Reserve Bank of India (RBI) will step in to cap the appreciation. A strong rupee could affect India’s export competitiveness, which might prompt the central bank to purchase dollars to maintain balance.

However, there has been no indication of RBI intervention so far.

Final Thoughts

The Indian rupee’s surge past 84 per dollar signifies a major shift in investor confidence and economic sentiment. While strong foreign inflows, supportive global trends, and robust domestic data have driven this appreciation, geopolitical and external risks remain potential spoilers.

For now, the rupee is enjoying one of its best runs in recent memory, and analysts are watching closely to see whether the upward momentum can sustain or face resistance near the ₹83.70 levels.

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