The Indian rupee closed largely unchanged on Tuesday, settling at 86.5775 against the U.S. dollar, a slight increase from the previous session's 86.5675. Earlier in the day, the rupee peaked at 86.2825 before losing ground as the U.S. dollar regained strength following President Donald Trump's comments regarding potential tariffs on Canada and Mexico.
Broad-based dollar demand and a 0.5% rise in the dollar index contributed to the rupee's decline after it had touched a two-week low. State-run banks intermittently offered dollars, which helped mitigate downward pressure on the rupee.
Trump's initial restraint on imposing tariffs led to a sharp decline in the dollar, but his subsequent remarks about a possible 25% levy reignited dollar strength. U.S. bond yields also saw fluctuations, with the 10-year Treasury yield recovering to 4.57% after a near three-week low.
ING Bank noted that markets remain cautiously optimistic about the pace of potential tariffs, anticipating 'headline trading' and short-term volatility, with risks leaning towards a stronger dollar. Additionally, dollar-rupee forward premiums declined due to buy/sell swaps by state-run banks, likely on behalf of the Reserve Bank of India (RBI), which has been active in managing rupee liquidity through such interventions.