Forex traders note that the rupee’s recent movements reflect shifting sentiment and unexpected policy signals. They anticipate that, in the short term, the currency pair will fluctuate between ₹87.50 and ₹88.50.

While weaker U.S. data and potential Fed policy adjustments may support the rupee, India’s trade challenges may remain affected, and tariffs could limit any recovery.

The rupee fell to an all-time low of 88.36 per dollar on Friday, shaken by persistent foreign portfolio outflows and renewed global trade tensions. Fresh tariff threats on semiconductor imports, along with speculation that the U.S. might restrict IT services and outsourcing—a direct blow to India’s largest export sector—spooked investors. However, the panic was short-lived. The currency quickly recovered its lows, with market chatter indicating RBI’s intervention as the stabilising factor preventing further volatility.

However, experts note that later in the day, U.S. President Donald Trump eased the situation with his “U.S. and India have a special relationship” remarks. There is “nothing to worry about”, he added on the bilateral ties.

Supporting the rupee was also the shifting outlook for the dollar. Friday’s Nonfarm Payrolls (NFP) report, which gauges new jobs outside agriculture, revealed only 22,000 jobs were added in August—well below the expected 75,000 and the slowest growth since January 2021. The unemployment rate rose to 4.3%, matching forecasts but indicating a weakening labour market.

The weak labour report prompted traders to increase their bets on rate cuts. The CME FedWatch Tool shows that the chance of the Federal Reserve lowering rates by a total of 75 basis points this year has risen to nearly 75%, up from 40% before the data was released. "Lower interest rates weaken the dollar, and as the greenback softens, emerging market currencies usually gain some support, allowing the rupee and similar currencies to stabilise,” says Amit Pabari, MD and CEO of CrForex.

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Rupee rises, then slips past 88 against dollar in early trade