Indian Rupee Hits Record Low Amid Trump’s Tariff Threat

The Indian rupee sank to a record low on Tuesday after former U.S. President Donald Trump escalated his trade threats against India, citing its continued purchase of Russian oil. The USD/INR pair surged to an all-time high of 88.10 before settling slightly below that level, reflecting mounting pressure on India's currency and trade outlook.

Trump’s Tariffs Rattle Emerging Markets

In a speech on Monday, Trump repeated his intention to “substantially raise” tariffs on Indian exports, following last week’s imposition of a 25% reciprocal tariff. The rhetoric has heightened fears of a renewed U.S.-India trade rift, particularly as Trump warned of potential 100% tariffs on countries buying Russian oil — singling out India and China.

Despite international pressure, India has maintained its energy ties with Russia, citing affordability and long-standing relations. Reuters reports suggest that New Delhi has no plans to scale back its Russian oil imports, further straining U.S. relations.

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RBI Meeting in Focus

The timing of these threats is particularly sensitive as the Reserve Bank of India (RBI) convenes this week. Markets expect another rate cut from the central bank in response to growing economic headwinds and a need to bolster domestic liquidity. The RBI has already trimmed rates by 100 basis points this year, and further easing could place additional downward pressure on the rupee.

A weaker rupee could drive up import costs, fueling inflation and affecting India’s fiscal balance. It also complicates the RBI’s task of maintaining currency stability while supporting growth.

Broader Asia FX Muted, Dollar Finds Support

While the rupee saw the steepest drop, other Asian currencies traded within tight ranges. The dollar steadied following its recent losses, buoyed by expectations that the Federal Reserve might cut interest rates in September. Markets are currently pricing in a 91% chance of a Fed rate cut, according to CME FedWatch.

Currencies like the Japanese yen, Chinese yuan, and Korean won were largely stable, with slight movements in response to mixed economic data. However, the uncertainty around U.S. trade policy and interest rates continues to cast a shadow over emerging market currencies.

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