By Jaspreet Kalra
MUMBAI (Reuters) – The Indian rupee was nearly flat on Tuesday, wedged between a broadly weaker greenback and dollar bids from foreign banks and local oil companies, while dollar-rupee forward premiums rose on the back of a decline in U.S. bond yields.
The rupee was quoted at 87.3775 against the U.S. dollar as of 10:35a.m. IST, little changed from its close at 87.37 in the previous session.
While concerns about a slowdown in the U.S. economy drove the dollar down by nearly 1% against its major peers on Thursday, the rupee was unable to benefit due to dollar demand from local importers and likely outflows from local stocks, traders said.
Foreign investors have pulled out over $14 billion from Indian equities in 2025 so far, maintaining pressure on the rupee, which has declined 1.9% over 2025 – second only to the Indonesian rupiah’s 2.4% decline.
Asian currencies were steady to slightly higher, with traders keeping a close eye on U.S. trade policy measures as the 25% tariffs on Mexcian and Canadian imports are set to go into effect on Tuesday.
The rupee, for its part, is expected to weaken further with “the possible application of reciprocal (U.S.) tariffs a key risk to watch moving forward,” MUFG Bank said in a note.
It expects the local currency to decline to 88.5 by the end of the year.
Meanwhile, dollar-rupee forward premiums rose, with the 1-year implied yield up 3 basis points at 2.13% as U.S. bond yields dipped. The 1-year U.S. Treasury yield was down 2 basis points at 2.06%.
A spate of softer U.S. economic data has nudged up expectations of more Federal Reserve rate cuts this year.
Interest rate futures are pricing in about 3 cuts this year, compared to less than two earlier in the year. The U.S. non-farm payrolls report due on Friday will be closely watched for cues on the Fed’s rate cut trajectory.
(Reporting by Nimesh Vora; Editing by Janane Venkatraman)
