US Dollar/Indian Rupee: A Tumultuous Week Amid Tariffs and Economic Surprises

The forex market has been a whirlwind of activity this week, with the US Dollar/Indian Rupee pair capturing the spotlight. As of September 1, 2025, the pair closed at 87.5917, teetering dangerously close to its 52-week high of 88.2894, set on August 28, 2025. The Indian Rupee has been under immense pressure, hitting an all-time low of approximately 88.45 against the US Dollar at the start of the week. This dramatic slump is primarily attributed to the imposition of 50% tariffs on Indian exports to the US, effective from Wednesday, August 30, 2025. These tariffs are expected to severely impact Indian exports, potentially slashing them by nearly $50 billion, with significant repercussions for sectors such as textiles, gems & jewellery, handicrafts, chemicals, and shrimps.

Tariffs and Their Economic Fallout

The tariffs have not only threatened to disrupt India’s export landscape but have also raised alarms over potential job losses and a spike in non-performing assets (NPAs). The economic tremors were felt across the board, with Foreign Portfolio Investors (FPIs) intensifying their selling spree, offloading a staggering $(6.50) billion over the last seven weeks. The week concluded with FPIs net selling $(1,478) million, a move largely driven by the punitive tariffs and their anticipated impact on the Indian economy.

A Silver Lining: GDP Growth Surprises

However, it wasn’t all doom and gloom. The week closed on a surprisingly positive note with India’s GDP growth for the first quarter of FY26 clocking in at 7.8%, significantly outpacing expectations by nearly 130 basis points. This robust growth, particularly in manufacturing and construction, offered a glimmer of hope amidst the economic turbulence. Yet, the question remains: will this GDP surprise be enough to sway FPI sentiments and stabilize the Indian Rupee?

Gold Prices and the Rupee’s Struggle

In the midst of the forex turmoil, gold prices in India saw an uptick, with rates climbing to 9,852.54 Indian Rupees (INR) per gram on September 1, 2025. This rise in gold prices, amidst the Rupee’s struggle, underscores the traditional safe-haven appeal of gold during times of currency volatility and economic uncertainty.

The RBI’s Strategic Maneuvering

Amidst these challenges, the Reserve Bank of India’s (RBI) strategic stability, particularly through the management of the short USD/INR forward book, has been a critical factor in navigating the currency’s volatility. The RBI’s adept handling of the forward book underscores its pivotal role in maintaining economic stability and investor confidence during turbulent times.

Looking Ahead

As the dust settles on a tumultuous week, the Indian economy stands at a crossroads. The tariffs have undoubtedly dealt a blow to the Indian Rupee, but the unexpected GDP growth offers a beacon of hope. The coming weeks will be crucial in determining whether the Indian economy can weather the storm and emerge resilient. For investors and policymakers alike, the focus will be on monitoring FPI flows, the RBI’s strategic interventions, and the broader economic indicators that will shape the trajectory of the US Dollar/Indian Rupee pair in the months to come.