Rupee logs biggest single-day drop in 3 weeks: Is the domestic currency poised for further weakness? Experts weigh in

INR vs USD Today: The Indian rupee logged its worst day in three weeks on Tuesday, February 25, 2025, dragged by weakness in regional peer currencies, importer hedging and US dollar demand related to the expiry of the non-deliverable forward contracts causing month-end interest among importers. These dragged the rupee amid the growing uncertainty over US trade tariffs.

The local unit settled at 87.21 to the US dollar, down from 86.6950 in the previous session. The domestic currency slipped 0.6 per cent on the day, its biggest single-day fall since February 5, 2025. At the interbank foreign exchange market, the rupee opened weak at 86.83 and kept losing ground throughout the day before settling lower by 47 paise over its previous close.

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INR vs USD Today: What’s dragging the domestic unit?

The domestic unit pared some losses as the Reserve Bank of India (RBI) likely intervened to support the currency after it dropped due to demand for the greenback related to derivatives expiry. According to forex traders, elevated greenback against major crosses and sustained foreign institutional outflows also contributed to the decline in the domestic unit’s value today.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, rose 0.04 per cent to 106.64 on Tuesday. The rupee settled at 86.72 on Monday. India’s currency markets will remain closed on Wednesday due to Mahashivratri. However, US stock markets will be open for trading.

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Amit Pabari, MD, CR Forex, said, “A large number of offshore forward contracts were set to expire today, requiring traders and investors who engaged in currency deals outside India to settle them. This created a strong demand for the US dollar, putting additional pressure on the rupee.”

According to forex traders, dollar demand, importer hedging, and weak Asian cues provided little room for appreciation. Traders added that expectations of strong RBI interventions have reduced speculative positioning against the rupee. This has also improved India’s forex reserves in recent weeks.

“Meanwhile, the RBI conducted a $10 billion buy-sell swap to address the persistent liquidity deficit in the banking system. This liquidity infusion has increased the rupee supply, contributing to its decline,” added Amit Pabari.

The dollar index recovered to 106.79 after falling to a more than two-month low of 106.35 on Monday. Asian currencies were lower, and the risk appetite soured after worries over US tariffs returned. US President Donald Trump restricted Chinese investments in strategic areas and also said Canada and Mexico tariffs will start next week, raising worries over a trade war.

Investors had largely hoped that negotiations would forestall the threat after Trump had previously agreed to a 30-day pause on the tariffs. In February 2025 alone, foreign investors sold Indian shares worth nearly $3 billion.

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INR vs USD: Is the domestic currency poised for further weakness? 

Rahul Kalantri, VP-Commodities, Mehta Equities Ltd., noted that the Indian rupee sharply declined against the US dollar, falling by more than half a per cent, marking its biggest intraday drop in the past three weeks. However, despite a slight recovery, the rupee remained weak below 87.20. With the existing foreign outflow, Kalantri expects the domestic currency to remain volatile, and the pair could trade in the range of 86.65-87.70 this week.

“Crude oil prices remained elevated amid US tariffs on Iran, which pushed oil demand higher. The dollar index at 106.65$ also added to the pressure on the rupee,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities. Experts noted that the currency faces a risk of weakness.

“With continued capital outflows and rising crude prices, rupee weakness may persist. Support is seen near 87.45, while resistance remains at 86.85. Market focus remains on global risk sentiment, oil price trends, and central bank policy signals,” added Trivedi.
 

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