On the last day of 2025, the Indian rupee ended at 89.87 against the US Dollar, avoiding a breach of the 90-level once again. The currency opened at 89.90 and slipped through the day, hovering near the 89.91 mark by the afternoon session.
While the domestic currency went through a rollercoaster ride throughout the year, here are the three key factors that largely drove the rupee’s sharp swings and weakness:
Rupee breaches two major crucial marks
The month of December was highly volatile for the currency as it breached two psychologically important marks. The currency slid past the 90 level and the 91 level in a span of just two weeks. While the RBI did intervene, the Indian rupee was one of the worst-performing Asian currencies as it fell by nearly 5%, marking its largest decline in three years.
The three main highlights weighing on the rupee were:
#1 Uncertainty around the India-US trade deal
The lingering tensions over the finalisation of a trade deal between India and the US kept the currency under pressure, as demand for dollars increased with the tariff rollout. This not only created a trade imbalance, but speculative positions in the market also increased, with traders betting on currency weakness.
“The RBI was uncomfortable with one-sided rupee depreciation, which is why they stepped in aggressively last time. The central bank has decisively curbed speculative positions when needed, as seen in the last 2–3 instances. It has also signalled to markets that they can’t rely on the RBI indefinitely,” said Ritesh Bhansali, Deputy CEO at Mecklai Financial Services, told Financial Express.
Policymakers have added that a trade deal between the two countries is likely to be struck by March 2026.
“The trade deal’s latest March deadline adds three more months of uncertainty. The RBI is currently defending the rupee in the 89–90 range, but can’t sustain it for long. I expect the rupee to remain under pressure in H1 2026 and thereafter see some appreciation,” Anitha Rangan, Chief Economist, RBL Bank, told Financial Express.
#2 Outflow of foreign equities from the Indian market
Further, the persistent pullout of equities by foreign investors from Indian markets added to currency pressure. So far, foreign investors have withdrawn $18 billion from the domestic markets amid tariff-related tensions and lingering geopolitical risks.
“Consistent outflows by foreign investors and dollar demand from defence, oil and gold are all impacting the rupee,” Reuters quoted Anil Bhansali, Head of Treasury at Finrex Treasury Advisors, as saying.
Additionally, a spike in the H-1B visa fee and high prices of precious metals like gold and silver continue to add weakness to the Indian currency.
#3 Projected outlook for the rupee
Despite the significant weakness in the currency, experts have added that the depreciation was sentiment-driven owing to a stalled trade deal with the US. As the country reported strong GDP numbers, benign inflation levels, and improved trade data, some analysts expect the currency to rebound.
“I see 88.50–89.50 as a fair trading range, expecting retracement there once the deal materialises,” Madan Sabnavis, Chief Economist, Bank of Baroda, told Financial Express.
Anindya Banerjee, Head – Commodity and Currency Research at Kotak Securities, told Financial Express that he expects support for the Indian rupee following weakness in the dollar. “The rupee faces strain in January and March 2026, likely hitting 92,” he added.
Meanwhile, Shinhan Bank’s Sodhani forecasts the rupee to trade in the range of 88.20–94.00 in 2026.