Mumbai witnessed a significant financial development as the Indian rupee experienced a sharp relief rally on Tuesday. This surge followed the announcement of a landmark trade agreement between the United States and India, which market analysts believe will have profound implications for the currency's stability and economic outlook.
Immediate Market Reaction and Currency Performance
According to data from Bloomberg, the rupee opened stronger at 90.4263 per US dollar on Tuesday. This marked a notable improvement from Monday's closing level of 91.5163, demonstrating the immediate positive impact of the trade deal announcement. The currency's rebound was supported by renewed optimism among foreign investors and a reduction in hedging-related pressures that had previously weighed on its performance throughout 2025.
Details of the Landmark Trade Agreement
The trade agreement, announced by US President Donald Trump on Monday following a discussion with Prime Minister Narendra Modi, represents a major shift in bilateral economic relations. Key provisions include a reduction of tariffs on Indian goods to 18%, down from previous rates as high as 50%. Additionally, the deal removes penalties associated with India's purchase of Russian crude oil, addressing a significant point of contention between the two nations.
Dhiraj Relli, Managing Director and Chief Executive Officer of HDFC Securities, commented on this development, stating, "We welcome the announcement of a landmark trade agreement between the Republic of India and the United States of America. At 18%, India's tariff rate is now lower than that of several major Asian trading partners, supporting growth in labour-intensive and export-oriented sectors such as textiles, gems and jewellery, and engineering goods."
Market Sentiment and Future Projections
Financial experts across Mumbai's trading floors expressed confidence that the agreement would remove substantial policy and tariff uncertainty. This uncertainty had previously triggered record equity outflows last year, contributing to the rupee's status as the worst-performing Asian currency in 2025, with a 6% annual decline and a 2% drop in the previous month alone.
Gaura Sengupta, Chief Economist at IDFC FIRST Bank, offered her perspective, saying, "The US-India trade deal will improve sentiment, so in the near term rupee will stay closer to the 90 levels. It may even briefly touch below but it will definitely improve sentiment."
Technical Analysis and Support Levels
Ritesh Bhansali, Deputy Chief Executive Officer at Mecklai Financial Services, provided technical insights into the rupee's expected trading range. He noted, "In the near term, support for the Indian unit is seen near 90.00–89.60 per dollar levels, while the next hurdle on the upside is seen near 90.80–91.00." This analysis suggests a more stable trading environment for the currency in the coming weeks.
Long-Term Economic Implications
While the trade deal is anticipated to enhance sentiment and attract foreign portfolio investment, economists caution that the rupee may still experience depreciation, albeit at a more gradual pace. Previous depreciation was driven less by trade fundamentals and more by capital outflows, a dynamic that the new agreement aims to address.
Sengupta elaborated on this point, explaining, "The major issue for INR and why the depreciation has been is because of capital outflows, and the current account was never an issue because India front-loaded its exports to the US." Supporting this view, data shows that India's exports to the US increased by 10% year-on-year during the April-December period, providing a cushion for the current account despite global trade disruptions.
Impact on Foreign Investment and Balance of Payments
The trade agreement arrives at a critical juncture as foreign direct investment has slowed due to declining dollar-adjusted returns on Indian investments. Market participants expect the deal to support capital inflows and improve India's balance of payments position.
Sengupta projected, "The BoP which was a large deficit in FY26 should become a very small negative in FY27… we still expect that you will have a much more moderate or gradual pace of depreciation." She estimated that depreciation in FY27 would be around 3%, significantly lower than previous expectations of 6%.
This comprehensive analysis from Mumbai's financial district highlights how the US-India trade agreement has not only triggered an immediate currency rally but also set the stage for more stable economic conditions, reduced uncertainty, and improved investor confidence in the Indian market.
