The Indian rupee commenced trading in the new year 2026 on a soft footing, declining by 11 paise to 89.99 against the US dollar in early trade on Thursday. The currency continues to face headwinds from sustained foreign capital withdrawals and ongoing trade-related uncertainties, which are dampening market sentiment.
A Year of Significant Depreciation
The rupee witnessed a sharp decline throughout 2025, losing close to 5% of its value since it breached the 85-per-dollar mark in January. It even moved past its previous record low of 91 against the American currency. This performance makes it the weakest currency in Asia. The depreciation is not limited to the dollar; the rupee has also shed over 19% against the euro, approximately 14% against the British pound, and more than 5% against the Japanese yen over the same period.
Notably, this broad-based weakness has unfolded against a backdrop where the dollar index itself fell by more than 10% and global crude oil prices remained subdued. The pressure on the rupee intensified significantly after April, when US President Donald Trump announced reciprocal tariffs. This move triggered sustained selling by foreign portfolio investors (FPIs), who began reallocating funds to other emerging markets perceived to offer better risk-adjusted returns.
Foreign Investment Flows Turn Negative
Official data cited by PTI reveals a troubling shift in foreign investment. On a net basis, foreign direct investment (FDI) turned negative between January and October. Overall investment inflows plummeted to minus $0.010 billion, a stark contrast to the $23 billion inflows recorded in the same period last year. The breakdown shows net FDI at $6.567 billion, while net portfolio investment remained deeply negative at minus $6.575 billion.
Commenting on the situation, Anindya Banerjee, head of currency and commodity research at Kotak Securities, told PTI that FDI acts as a crucial anchor for the balance of payments. "When that anchor weakens, the currency becomes more dependent on portfolio flows; forex markets turn more sensitive to global risk sentiment; and central bank intervention requirements increase," he explained.
Accelerated Losses at Year-End
The rupee's descent gained momentum in the final months of 2025. It experienced a single-session fall of more than 1% on November 21, dropping to 89.66 per dollar. The currency then slipped past the psychologically significant 90 mark on December 2 and finally breached the 91 level on December 16, underscoring the persistent selling pressure and negative sentiment that has carried into the new year.
