Mumbai: The Indian rupee is poised to face continued downward pressure throughout 2026, with trade tensions with the United States and ongoing global volatility expected to keep the currency’s exchange rate under stress, according to market observers and analysts.
The domestic currency ended 2025 as one of the worst-performing Asian currencies, and early trading in 2026 suggests persistent headwinds.
According to media report, the rupee has weakened about 5 per cent from levels near ₹85 per U.S. dollar since the start of 2025, even briefly breaching the ₹91 mark against the greenback — a historic milestone reflecting deep external pressures.
Market participants say that trade negotiations with the U.S., particularly unresolved tariff and trade deal issues, continue to cloud investor confidence. A lack of clarity on a comprehensive India–U.S. trade pact has limited foreign capital inflows, contributing to currency volatility and widening the trade deficit. Analysts argue that until there is meaningful progress in trade talks, the rupee’s vulnerability to global risk sentiment and dollar strength is likely to remain elevated.
Foreign institutional investors (FIIs) pulled out substantial sums from Indian equities in 2025, exacerbating the demand for U.S. dollars and adding to depreciation pressures. Even as the rupee began 2026 around the ₹89.95 to $1 range, modest volatility reflects continuing sensitivity to external cues.
Despite these pressures, India’s underlying macroeconomic fundamentals — including robust growth, healthy foreign exchange reserves, and moderate inflation — continue to act as stabilising anchors for the currency, according to analysts. However, these buffers may not be sufficient to fully counter global headwinds if tariff concerns and capital flow dynamics persist.
Economic strategists highlight that persistent capital outflows, tariff-induced trade disruptions, and elevated geopolitical uncertainty are likely to sustain high exchange rate volatility in 2026. While a future trade deal with Washington could offer temporary relief, it may not be a standalone solution unless backed by stabilising foreign investment trends.
Forex strategists forecast that the rupee will remain sensitive to global financial flows and trade deal developments throughout the year, with intermittent bouts of volatility driven by dollar strength, external portfolio movements, and evolving geopolitical risks. Unless there is a marked improvement in capital inflows or decisive progress in trade negotiations, the currency could remain range-bound with a bias toward mild weakness.