The Indian rupee leapt higher on Friday, tracking gains in Asian peers as the dollar slumped to a nearly two-year low, with traders expecting volatility to persist as concerns over trade tariffs kept markets on edge.

The rupee rose 0.8 per cent to 86 against the US dollar as of 10:15 a.m. IST, up from its close at 86.6875 on Wednesday. Indian financial markets were shut on Thursday for a local holiday.

While a 90-day pause on US reciprocal tariffs - for all except China - had sparked a relief rally across markets on Wednesday, worries over the economic impact of tariffs have resurfaced, weighing most heavily on the dollar itself.

Although country-specific tariffs have been delayed, the universal 10 per cent tariff rate remains in effect.

The dollar index fell to touch a low of 99.7 in Asia trading after slumping 2 per cent the previous day. US equities and bonds also sold off after the relief rally, signalling that investors were exiting US assets, analysts said.

Investors have ducked for cover since the US announced reciprocal tariffs. The dollar has faced pressure while safe havens such as the Swiss franc, the Japanese yen and the euro, as well as gold, have benefited.

The rupee is currently in "the middle of its recent trading range and it could consolidate between 85.70 and 86.70 in the near term," a trader at a state-run bank said.

Meanwhile, dollar-rupee forward premiums fell, with the 1-year implied yield down 6 basis points at 2.27 per cent, pressured by a decline in the dollar-rupee spot rate and higher US bond yields.

The 1-year US Treasury yield was up 4 bps at 4.02 per cent and the 10-year yield is on course for its biggest weekly rise since 2001.

"Confidence in USD assets does feel shaky and we suspect that another collapse in swap spreads or a too rapid rise in long end yields may prompt the Fed to intervene," DBS Bank said in a note.

Published on April 11, 2025