On March 5, the Indian rupee closed more than 30 paise stronger against the US dollar, marking its best performance in the past three weeks. The rupee settled at 86.9675 per dollar, a significant improvement from its previous closing rate of 87.2700 per dollar. The last time the rupee showed such a strong gain was on February 11, 2025, when it surged by approximately 65 paise in a single day, making it the biggest intraday gain of the year so far.
Factors Behind the Strengthening of the Rupee
Anil Kumar Bhasali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, explained to Moneycontrol that the rupee’s appreciation was largely due to a steady influx of foreign investments.
“Custodial flow (increase in foreign investment) remained constant throughout the day, which helped the rupee recover from 87.23 to 86.9550. If the ongoing trade tariff tensions do not escalate further, the rupee could strengthen even more, potentially reaching levels between 86.50 and 86.00 in March,” he stated.
Impact of Falling Dollar Index
Another key factor that contributed to the rupee’s appreciation was the decline in the dollar index, which measures the strength of the US dollar against six major global currencies. The index dropped to 105.061 from its previous session level of 105.743. Earlier in the week, on Monday, it had reached 106.743, indicating a continuous weakening trend of the dollar.
Reasons for the Dollar’s Decline
The US dollar is under pressure due to growing concerns over a potential economic recession in the United States and uncertainties surrounding the impact of increased trade tariffs. These factors have contributed to the dollar’s weakening trend.
Additionally, a US Federal Reserve official recently acknowledged the uncertainty in the economy and stated that the current monetary policy is already restrictive. The official also hinted that adjustments could be made if necessary. This statement has fueled market expectations of potential interest rate cuts by the Federal Reserve, further weakening the dollar.
Amit Pabari, Managing Director of CR Forex Advisors, noted that the soft stance taken by the Federal Reserve has provided relief to the rupee. “The dovish comments from the Fed have weakened the dollar, and if this trend continues, the rupee could strengthen further in the coming weeks,” he said.
Future Outlook for the Rupee
If the trade war does not intensify and the US Federal Reserve follows through with rate cuts, the Indian rupee could continue to gain strength. Analysts predict that the rupee may approach the 86.00 mark by the end of March, provided market conditions remain favorable.
