A Currency on the Rise – Rupee Gains Momentum Amidst Inflow Surge

The Indian Rupee posted a notable recovery during the week ending 19 April 2025, supported by strong foreign inflows and a pullback in bullish US dollar positions. While several Asian currencies weakened over the same period, the Rupee remained stable, reflecting improved foreign investor sentiment and steady demand in the forex market.

This blog examines the Rupee’s recent movement, the factors driving its rise, and what the future may hold.

Rupee’s weekly performance and main influences

On 21 March, the Rupee was trading at 86.1475 against the US dollar, showing a daily gain of 0.25%. Over the week, it appreciated by 0.72%, making this its strongest weekly performance in nearly two years. The performance of a country’s currency often reflects its broader economic health and investor sentiment.

A big part of this momentum came from foreign banks bringing in dollars and traders moving away from their earlier bets on a stronger dollar. Major foreign banks were actively trading in the dollar-rupee market throughout the week. This also helped meet demand and keep the market stable.

Possible reasons behind the Rupee’s recent momentum

Some factors contributing to the Rupee’s recent strength are:

• RBI FX swap and market impact

Market experts believe recent dollar inflows may be connected to companies or banks raising funds ahead of the foreign exchange (FX) swap planned by the Reserve Bank of India (RBI). FX swaps are tools the RBI uses to manage money flow and control the Rupee’s value. Expecting this move, banks and big investors have already adjusted their positions, which is affecting the currency.

• FTSE Index changes

The Rupee got an extra boost from foreign investment linked to changes in the FTSE (Financial Times Stock Exchange) All-World Index. Foreign portfolio investors, who have been sellers of Indian equities since late 2024, turned buyers in the last few sessions. As part of the index rebalancing, around $1.5 billion is expected to flow into Indian stocks.

When foreign investors put money into Indian shares, they must exchange their dollars for rupees. This increases demand for the Rupee, which helps strengthen the currency. These inflows not only lift the stock market but also help support the Rupee, especially when other Asian currencies are facing difficulties.

• Regional currency shifts and global factors

The following currency shifts were noted recently:

o While the Indian Rupee stayed strong, most other Asian currencies fell at the end of the week mentioned above. This shows that many investors are feeling uncertain, mainly due to concerns about US trade policies and the overall state of the US economy.

o The dollar index, which measures the value of the US dollar against other major currencies, went up slightly. This was mainly because investors are hopeful about upcoming US economic data, like inflation, jobless claims, and GDP growth. These reports could affect what the US Federal Reserve decides to do next.

While many Asian currencies are under pressure due to worries about US-China trade tensions and high inflation in major economies, India’s strong economic performance and steady investor interest have helped the Rupee stay more stable.

Indian Rupee: What lies ahead

Looking ahead, local and global factors will influence the Rupee’s future. Some of the main things to watch will be the Reserve Bank of India’s FX swap plans, activity in the capital markets, inflation trends and any changes in US Federal Reserve policies.

Moreover, factors like India’s trade deficit, the level of foreign reserves and how companies perform during the earnings season may also influence investor confidence and investment decisions. Moreover, the Rupee might face more pressure if global tensions rise or commodity prices spike.

While the Rupee has had a strong week, market experts are still cautiously optimistic. The Rupee is in a good spot for now, but external challenges could quickly change things.

Conclusion

The Indian Rupee has outperformed many other Asian currencies in the past few weeks thanks to strong foreign inflows and strategic actions ahead of a key central bank operation. While the currency might face some resistance in the short term and might have difficulty rising much further from where it is now, the overall outlook looks positive.

However, as global economic trends and policy changes become more important, the Rupee’s ability to stay strong will likely be tested. The next few weeks will be important for both traders and policymakers.