MUMBAI: The Indian rupee posted modest gains on Tuesday, tracking strength in regional peers, as markets looked past the White House’s tariff letters and instead took solace in the deadline extension to August 1 that leaves room for deals to be struck.
The rupee closed at 85.6950 against the U.S. dollar, up about 0.2% from its close at 85.85 in the previous session.
Market reaction to U.S. President Donald Trump dispatching letters to 14 trading partner with sharply higher tariffs on imports into the United States was largely muted, with most regional equities and currencies gaining on Tuesday.
For instance, while South Korea received a letter declaring a 25% tariff, the won rose 0.7% against the dollar and the KOSPI 200 index gained nearly 2%, logging its best day in two weeks.
India’s benchmark equity indexes logged modest gains as well. Local equities have largely kept pace with a regional stock gauge since U.S. reciprocal tariffs were announced on April 2, but the rupee has underperformed emerging market peers despite broad weakness in the dollar.
Indian rupee to track Asian peers lower after Trump flags return to higher tariffs if no deal
“The market seems to be taking the view that nothing is final and that these letters merely mark another iteration on the journey towards a trade deal,” ING said in a note.
The local currency was supported by modest interbank dollar sales on the day alongside positive cues from gains in regional currencies, a trader at a private bank said.
Traders reckon that the rupee is likely to stick to rangebound price action in the near-term but the announcement of a trade deal with U.S. could open room for a rise towards 85.
Meanwhile, dollar-rupee forward premiums retreated as traders trimmed wagers on rate cuts by the U.S. Federal Reserve. The 1-year dollar-rupee implied yield declined 4 basis points to 1.95%.
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