Rupee Rebounds on Strong Equities, But Fed's Policy Hints & Tariff Fears Keep Traders on Edge

Mumbai, August 25, 2025 – The Indian rupee staged a modest comeback on Monday, strengthening 18 paise against the US dollar on the back of upbeat equities and renewed optimism in risk assets. However, global jitters, from impending US tariffs on Indian exports to the Federal Reserve’s policy signals, kept traders cautious about the near-term trajectory.

Morning Momentum: RBI, Equities Improve the Mood

The rupee opened higher and quickly eroded Friday’s losses in short order, with the movement attributed by dealers to supporting equity markets and presumed Reserve Bank of India intervention to cap sharp weakening. A more buoyant risk tone on Asian equities also helped the recovery.

Global Crosswinds: Powell’s Signal, Tariffs Hang Over

Market attention continued to be centred on Fed Chair Jerome Powell’s Jackson Hole speech, in which he acknowledged “labour market cooling” and hinted at possible rate action. Futures now are pricing almost a 90% probability of a 25 bps cut at the Fed’s September meeting.

On the trade front, Washington’s plan to impose a 25 bps duty on certain Indian goods from August 27 hangs over the market. Investors fear more rapid outflows in the event of escalation, particularly after Republican leader Nikki Haley issued a warning on India’s Russian crude purchases.

Commodities & Dollar Watch

Dollar Index: Bounced back modestly at 97.86 after last week’s fall.

Crude Oil: Brent futures remain stable at USD 67.80 a barrel, supported by Fed-driven growth expectations.

Gold: Prices strengthened above USD 2,430/oz, reflecting haven demand amid geopolitical tensions.

Domestic Market Pulse

Equities: Benchmarks extended their gains in early trade as Sensex crossed 81,590 and Nifty drew close to 25,000, led by auto and banking stocks.

FPI Flows: Even while equities were firm, foreign investors remained net sellers on Friday, pulling out over ₹1,600 crore.

Forex Reserves: Rising to USD 695.1 billion, giving RBI greater firepower to defend the rupee.

Key Takeaway

Though the recovery now provides a temporary reprieve, specialists caution that the rupee’s fate rests on tariff schedules, the Fed’s rate path, and crude oil dynamics. Even a marginal softening in global risk appetite can soon nibble away at the gains, leaving the RBI as the best stabiliser in the weeks ahead.

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