The rupee fell to a historic low on Monday, September 1, hovering around ₹88.25 10:30 IST, as strong dollar demand from importers and foreign portfolio investors (FPIs) weighed on the currency.

While banks have reduced their trading bets, many importers, who didn't protect themselves against currency changes, are facing losses.

The sharp slide came as markets grew increasingly anxious about the fallout of 50% U.S. tariffs on India’s growth trajectory and corporate earnings. However, there has been a legal twist in the US tariff as the US Court of Appeals said that Trump's 'reciprocal tariff' is unconstitutional.

Amit Pabari, MD and CEO of CrForex, stated that if the new duties remain in place for a year, they could shave off 60–80 basis points from India’s GDP growth. But the immediate and sharper concern lies in the risk of a widening trade deficit. "With the U.S. as India’s largest export destination, nearly $60 billion worth of shipments are now exposed to steep tariff barriers. Sectors such as textiles, gems & jewellery, shrimp, carpets, and furniture stand in the firing line, raising fears of heavy export losses. With export earnings expected to fall while imports stay firm, pressure on India’s trade balance has only added to the rupee’s weakness," said Pabari.

Adding to market unease, the RBI appeared to step back from active intervention around the ₹87.80 mark, a level where it had earlier been curbing volatility. Coupled with persistent foreign outflows from local equities, this opened the door for the rupee to slide sharply lower, added Pabari.

While a weaker rupee theoretically makes Indian goods cheaper abroad, offering some cushion for exporters, the sheer scale of tariff-led disruption overshadows this benefit. Until clarity emerges on the tariff front, the bias for the rupee remains depreciative.

According to analysts, some measures remain in place, for instance, tariffs on steel and aluminium, as well as earlier China duties, and the removal of the $800 duty-free import limit. However, the bigger issue remains undecided.

Furthermore, the decision is on hold until October 14, allowing the White House time to file an appeal with the U.S. Supreme Court. If tariffs could be cancelled and refunded, it would reshape trade flows, hurting Trump’s trade plan and weakening the U.S. dollar.

"Amid the uncertainty caused by U.S. tariffs, India’s GDP surged 7.8% year-on-year—the fastest in five quarters—beating expectations of 6.6%. Strong consumer spending and rising investment are driving this growth, which could give a push to foreign inflows, providing the Indian rupee with much-needed support," said Pabari.