Rupee Opens Firm Amid Dollar Weakness, Gains Up to 40 Paise

The Indian Rupee started the trading week on a higher note, opening with gains over the US currency on Monday. This trend follows the movement of other Asian currencies in the face of a softening US currency. The Indian currency opened 17 paise higher at 85.05 over the US dollar after its Friday closing at 85.22, reports Bloomberg.

The rupee jumped sharply by 40 paise in early trade on Monday (May 26, 2025), opening at 85.02 at the interbank foreign exchange before trading at 85.05 against the dollar. The sharper gain is quoted against a close of 85.45 on Friday. The earlier session also witnessed the rupee posting its steepest one-day gain in nearly a year, since November 2022. Notwithstanding the recent resilience, the domestic currency has lost 0.66 per cent in value so far this month.

Factors Powering the Rupee's Rise

Various reasons seem to be behind the appreciation of the Rupee at present. One major reason is the ongoing weakness of the US dollar. The dollar index, which is used to measure the strength of the greenback against a basket of six major currencies, was trading lower, cited at 98.81 and 98.67 in various sources. This weakness in the dollar index is observed following US President Donald Trump's extension of the deadline for 50 per cent tariffs on European Union goods to July 9.

Another of the major reasons mentioned is the Reserve Bank of India's (RBI) surplus transfer to the government recently. The RBI declared a record dividend for FY25, transferring ₹2.69 trillion to the government.

Although this figure apparently missed some market estimates, which had hoped for a number close to ₹3 trillion, it is a considerable and sustainable injection of liquidity into the system. Forex traders specifically attributed this dividend announcement as the additional strength of the local currency.

Capital Inflows and Market Sentiment

The foreign money flows are also contributing. Foreign fund inflows gave the Rupee added strength in early trade. Exchange statistics indicate Foreign Institutional Investors (FIIs) bought equities to the tune of ₹1,794.59 crore on the net basis on Friday. Positive equity markets domestically, with the BSE Sensex and Nifty both going up, also helped the appreciation.

Yet, the debt market picture is different. Global funds withdrew ₹4,000 crore from the Indian bond market during the last week (excluding Friday), the most in more than a month, which added to earlier pressure on the Rupee. FIIs may continue selling through a lesser bond yield gap between Indian and US 10-year bonds. Increasing yields of American long-duration bonds are also cited along with selling the dollar in overall global trends.

Looking forward, any related outflows due to MSCI adjustments tomorrow may be a catalyst for the Rupee to depreciate marginally. The day today also happens to be a US holiday, resulting in weak market flows.

External Factors and Economic Indicators

Global trade-related uncertainties are reported, though crude oil prices rose slightly on the ease of trade tensions after the US tariff deadline extensions. Brent crude price was 0.31 per cent higher at $64.98 per barrel, increasing to USD 64.99 in futures trade.

Market players are also looking out for important domestic economic data releases this week in the form of industrial and manufacturing output data for April and the Q1 GDP growth figures. These are likely to give a better picture of the overall economic activity in the country. India's forex reserves fell USD 4.888 billion to USD 685.729 billion for the week ended May 16.

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