The Indian rupee faced significant pressure in the financial markets, emerging as the second worst-performing Asian currency as of April 11, following an unsettling series of events spearheaded by US President Donald Trump’s announcement of reciprocal tariffs. The move, which introduced steep levies on a number of key US trading partners including India, China, Japan, and the European Union, sparked widespread concern among global investors, prompting sharp foreign outflows from Indian markets and a decline in equity performance.

Performance of the Rupee Amid Global Volatility

The rupee has slipped by 0.73 percent since the beginning of April, according to Bloomberg data, positioning it just ahead of the Indonesian rupiah, which fell by 1.40 percent in the same period. This fall occurred despite a noticeable easing in the dollar index, which typically supports emerging market currencies like the rupee. However, limited inflows from foreign institutional investors (FIIs) and persistent weakness in equity markets acted as strong barriers to any potential rebound.

In contrast to its performance against Asian peers, the Indian rupee fared better than several major global currencies, including:

• South African rand: down 4.31%

• Brazilian real: down 3.45%

• Norwegian krone: down 1.60%

• Australian dollar: down 0.92%

• Mexican peso: down 0.85%

Expert Commentary on Rupee’s Underperformance

Dilip Parmar, a senior research analyst at HDFC Securities, noted that "the Indian rupee remained least volatile among Asian peers but underperformed so far this month amid foreign fund outflows and volatile risk assets." He also highlighted that positive economic indicators and an interest rate cut by the Reserve Bank of India (RBI) failed to bolster the rupee as global trade concerns kept FIIs on the sidelines.

Trump’s Tariff Bombshell on April 2

On April 2, US President Donald Trump unveiled a global reciprocal tariff policy during a White House address, showcasing a chart that stunned global markets. The tariffs announced were:

• China: 34%

• European Union: 20%

• South Korea: 25%

• India: 26%

• Japan: 24%

• Taiwan: 32%

In a bold move, Trump claimed India had already been charging a 52 percent tariff on US goods, allegedly due to "currency manipulation and trade barriers." In response, the US introduced what it termed "discounted reciprocal tariffs" for India, set at 26 percent.

Market Fallout: Global and Domestic Impact

The announcement sent shockwaves across global stock markets, causing a substantial sell-off. Indian markets were no exception, with significant foreign portfolio investment (FPI) outflows reported in the days that followed. As a result, the rupee came under renewed pressure, despite the fall in the dollar index which typically favors emerging market currencies.

The dollar index, which tracks the value of the US dollar against six major currencies, dropped to 99.460, marking its lowest level since July 18, 2023. Yet, the rupee did not benefit significantly from this slide, as external pressures far outweighed domestic advantages.

Trump’s Temporary Reversal and 90-Day Pause

Facing mounting criticism from Republican lawmakers, corporate leaders, and US treasury officials, President Trump announced a 90-day 'pause' on the reciprocal tariffs for all countries except China. China was hit harder with a whopping 125 percent tariff, while other nations were temporarily granted a baseline 10 percent levy.

Trump acknowledged the widespread panic, saying "People were getting a little bit afraid", and claimed that markets were "getting yippy." The steep selloff in US government bonds, flagged by Treasury Secretary Scott Bessent, also played a pivotal role in the reversal.

Foreign Outflows and Investor Sentiment

FIIs have remained hesitant to engage with Indian markets amid these developments. Despite RBI’s rate cuts and healthy economic data, concerns over a potential global trade war and recession have dampened investor appetite. The risk aversion has been evident in both debt and equity markets, with fund flows remaining subdued.

Currency Market Overview: Comparative Insight

When compared to other emerging markets and commodity-driven currencies, the rupee showed relatively moderate depreciation, but the sentiment remains fragile. The key takeaway is that India’s currency is not immune to external shocks, especially in the face of global policy volatility and uncertainty in international trade dynamics.

Outlook: What Lies Ahead for the Rupee?

While the 90-day pause in tariffs may offer temporary relief, market experts believe that the rupee may continue to face headwinds. Factors such as:

• Geopolitical tensions

• Sluggish global trade

• Fluctuating crude oil prices

• Volatile equity markets

…will continue to dictate the trajectory of the rupee in the near term.

If foreign investors return to Indian markets in meaningful numbers and the US softens its stance further on trade, we could see stabilization or even a recovery in the rupee. However, for now, the outlook remains cautious, and currency traders will be watching global cues closely.

Conclusion

The Indian rupee’s underperformance in April 2025 reflects the profound impact of global policy announcements on emerging market currencies. While it remains relatively stable compared to others, the external pressures from Trump's tariff policy and foreign fund pullouts have clearly strained its performance.

As the world watches how the reciprocal tariffs drama unfolds, and whether it will evolve into a full-blown trade war, the rupee’s journey ahead appears highly sensitive to global sentiment and investor flows.

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