The Indian rupee has recently found itself in choppy waters. What began as a mild currency dip is now turning into a broader concern, thanks to renewed US tariff threats and a firming US dollar. For investors, policymakers, and market participants, the question is no longer if the rupee will come under pressure, but how much more.
On July 14, the rupee slipped to Rs 85.98 against the dollar, its weakest level in over two weeks. While the drop may seem modest, the drivers behind it point to deeper turbulence. US President Donald Trump has hinted at imposing high tariffs—possibly over 200%—on pharmaceutical imports if elected, and India, a key supplier of generics to the US, finds itself squarely in the spotlight.
The Dollar Tightens, the Rupee Wobbles
The pressure on the rupee isn’t just political—it's also economic. US inflation rose by 0.3% in June, leading traders to scale back bets on Fed rate cuts. This made the dollar stronger globally, pushing the dollar index near 98.6—a three-week high. A stronger dollar makes emerging market currencies like the rupee less attractive, leading to outflows.
At the same time, India’s retail inflation cooled to a six-year low of 2%, reinforcing expectations that the RBI may continue its dovish stance. But this widening interest rate gap between India and the US further erodes rupee strength.
Tariffs: The Wild Card
While India hasn't been directly hit by new US tariffs yet, the rhetoric is enough to spook the markets. Trump’s recent comments suggest that the US may impose hefty tariffs on pharma imports. India, the world’s third-largest supplier of drugs by volume and the leading exporter of generics to the US, has a lot at stake.
Indian pharmaceutical companies generate a significant chunk of their revenue from the US market. Any disruption could hurt earnings, valuations, and ultimately, investor sentiment.
What’s Next for the Rupee?
Analysts suggest that if the Rs 86 mark is breached, stop-loss triggers could accelerate the fall. RBI is expected to step in selectively through public sector banks to smooth volatility, but may not defend any specific level aggressively.
A lot now depends on US–India trade negotiations and the Fed's upcoming commentary. For Indian businesses and investors, it’s a moment to stay watchful — because currency stress, like inflation, can seep into every corner of the economy.
Disclaimer
This blog is purely for educational purposes and should not be considered investment advice. Please do your own research or consult a registered financial advisor before making any investment decisions.