Currency dynamics on the day of the US‑India trade agreement
The Indian rupee opened in a cautious, yet optimistic stance, reflecting the dual forces of a fresh trade pact and heightened hedging activity. Early trade on 4 February 2026 saw the currency slip to 90.54 USD, a 22‑paise depreciation from the previous session’s rally. The move was sharp but short‑lived, as the market quickly re‑established the gains that had been made the day before.
Trade agreement fuels positive sentiment
The cornerstone of the market’s optimism is the recently confirmed trade agreement between the United States and India. Both OCBC Bank and BBH analysts have underscored that the deal injects long‑term growth potential into the Indian economy, thereby bolstering the rupee. OCBC’s report, cited in both BitcoinEthereumNews.com and FXStreet, stresses that the deal has already begun to lift sentiment, although it acknowledges residual risks that could temper the rally.
The trade agreement’s immediate impact is evident in the rupee’s performance. The currency recorded its most significant single‑day gain since 2018, climbing 1.4 % on 3 February, a 7‑year high, before the 4 February session’s slight pullback. This surge is mirrored in the 52‑week high of 92.3275 reached on 27 January, signalling that the rupee remains in a bullish trajectory.
RBI’s intervention and corporate hedging
The Reserve Bank of India’s decision to conduct a USD/INR swap auction for US $10 billion, with a bid‑to‑cover ratio of 2.5, demonstrates proactive liquidity provision. The auction’s timing—aligned with the trade deal announcement—signals the RBI’s intent to stabilize the market while supporting the rupee’s appreciation.
Simultaneously, corporates have intensified hedging activity. Reuters reports that corporate hedging has driven the rupee down in early trading, as companies seek to lock in favorable exchange rates ahead of potential future volatility. The combined effect of RBI liquidity injections and corporate hedging creates a complex backdrop: while the central bank’s actions support the rupee, corporate hedges exert downward pressure.
Market sentiment and FII positioning
Foreign institutional investors (FIIs) have adopted a cautiously bullish stance. FXStreet.de notes that the rupee “handelt vorsichtig” (trades cautiously) after the FIIs returned, following the confirmation of the trade agreement. Meanwhile, BitcoinEthereumNews reports that FIIs have turned into “bet buyers” on the trade‑deal euphoria, signalling confidence in the currency’s future trajectory.
However, the market’s reaction remains measured. The rupee’s open on 4 February was a slight dip from the previous close, suggesting that investors are awaiting further confirmation of sustained strength before committing to a long‑term rally.
Technical backdrop and future outlook
The rupee’s close price of 90.2456 on 2 February sits well above the 52‑week low of 72.9671 (5 May 2025) and below the recent high of 92.3275. This positioning indicates that the currency is operating within a relatively narrow band, offering limited room for large swings in either direction without significant fundamental shifts.
In the immediate term, the rupee’s performance will hinge on several factors:
- Continuation of the trade deal’s positive impact – If the agreement leads to measurable economic benefits (e.g., increased FDI, export growth), the rupee could consolidate gains.
- RBI’s policy stance – Further liquidity injections or tightening could shift the balance.
- Corporate hedging trends – Persistent hedging could dampen the rupee’s upward momentum.
- FII activity – A sustained bullish position from FIIs will support the currency; any reversal could trigger volatility.
In conclusion, the rupee’s trajectory today reflects a delicate equilibrium between optimism stemming from the US‑India trade agreement and caution induced by corporate hedging and FII positioning. The currency’s future will depend on how these forces evolve in the coming days and weeks.
