Mumbai

The Indian rupee on Tuesday staged its sharpest single-day rally in recent years, surging 117 paise or 1.28 per cent to close at 90.32 against the US dollar, buoyed by optimism over the India-US trade deal and strong domestic equity markets.

Forex traders said the rupee emerged as the best-performing Asian currency for the day, rising to its highest level in over two-and-a-half weeks and rallying nearly 1.5 per cent intraday after Washington agreed to lower reciprocal tariffs on Indian goods.

Domestic equities surged nearly 2.75 per cent, while easing crude oil prices and strong foreign fund inflows further lifted investor sentiment.

Under the trade agreement, the US will reduce reciprocal tariffs on Indian exports to 18 per cent, a lower rate than those applicable to countries such as China, Bangladesh and Vietnam.

At the interbank foreign exchange market, the rupee opened at 90.30 against the dollar, strengthened to an intraday high of 90.05 and slipped to a low of 90.52 before settling at 90.32.

The local currency had gained 44 paise to close at 91.49 on Monday, a day after the presentation of the Union Budget 2026–27.

Prime Minister Narendra Modi on Tuesday described the India-US trade agreement as a “big decision” that would benefit all sections of society, asserting that his government consistently works in the national interest.

Market participants said the deal could revive foreign institutional investor (FII) interest in Indian assets, helping ease pressure on the rupee if capital flows recover during calendar year 2026.

“With the reciprocal tariffs on India’s exports to the US now lowered, we estimate the current account deficit to narrow by around 0.25 percentage points of GDP in CY26 to 0.8 per cent. If capital flows recover following the conclusion of the trade deal, it could ease pressure on the rupee and pose downside risks to our 12-month USD/INR forecast of 94,” Goldman Sachs said in a research note.

However, analysts cautioned that challenges could persist.

“There could be hiccups along the way with this trade agreement—for instance, it may not be easy for India to divert its Russian oil purchases quickly. The RBI’s FX policy could also complicate matters, as it has intervened unpredictably in recent months to prevent one-sided speculative positioning in the rupee,” HSBC said, while maintaining its end-2026 USD-INR forecast at 90.

Meanwhile, the dollar index, which measures the greenback against a basket of six currencies, slipped 0.05 per cent to 97.57.

Brent crude, the global oil benchmark, traded 0.14 per cent lower at USD 66.18 per barrel in futures trade.

On the equity front, the Sensex surged 2,072.67 points to close at 83,739.13, while the Nifty jumped 639.15 points to settle at 25,727.55.

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Foreign Institutional Investors turned net buyers, purchasing equities worth Rs 5,236.28 crore on Tuesday, according to exchange data.