Indian Rupee Rebounds after US Tariff Reduction

Today on February 03^rd 2026, the Indian rupee recovered from record lows following a trade-related announcement between the United States and India. Rupee strengthened to around ₹90.04–₹90.05 per US dollar, reversing weakness seen in late January after an agreement to reduce US tariffs on Indian goods to 18%, from elevated levels that had reached up to 50% on select categories.

USDINR: Market Reaction

The impact of the tariff announcement was visible in USDINR, the pair fell approximately 1.17% comparing 02^nd February 2026 close to 03^rd February 2026 open.

Removal of Russian Oil–Linked Penalty: Structural Impact

Prior to the agreement, Indian exports to the US were subject to an effective levy of up to 50%, consisting of a 25% reciprocal tariff and an additional 25% penalty linked to India’s Russian oil imports. Under the revised arrangement, the US has withdrawn the additional punitive duty, leaving only the 18% reciprocal tariff in place.

What Is Confirmed and What Remains Unclear

According to official statements, the reduction of US reciprocal tariffs on Indian goods to 18% is confirmed and effective immediately. However, several broader commitments discussed publicly have not yet been formally verified by Indian authorities.

*as of 03^rd February 2026

Sector Impact Overview

Textiles and Apparel

1. Direct beneficiaries of tariff reductions
2. Improved pricing competitiveness in the US market
3. Enhanced export economics for US-facing businesses

Information Technology and Technology Exports

1. No direct tariff exposure
2. Benefited from improved macro sentiment
3. Lower currency volatility supported earnings visibility

Capital Markets and Financials

1. Broad-based equity market participation
2. Expectation of increased Foreign Portfolio Investor (FPI) inflows
3. Financials and capital goods led index gains
4. Improved liquidity and risk sentiment

Sector Winners: Export-Linked Overview

Relative Positioning in the US Market

Following the tariff revision, India’s effective tariff rate is now lower than those applied to several competing exporters, including Indonesia, Bangladesh, and Vietnam. The adjustment also improves India’s relative position against China and Pakistan in select export categories

Longer-Term Competitive Considerations

1. The revised 18% tariff level improves India’s relative position versus key Asian peers
2. Reduced trade friction supports export planning and supply chain integration
3. Improved trade visibility may support investment flows into export-oriented sectors

Scope and Limitations of the Agreement

The current development represents a targeted tariff reset, not a comprehensive trade agreement. Broader trade, energy, and procurement negotiations remain ongoing, with further clarity expected as discussions progress.

Conclusion

The rupee’s rebound reflects improved external trade conditions following the US–India tariff reduction. Enhanced export competitiveness, reduced trade-related uncertainty, and improved market sentiment supported currency and equity market performance during the period.

While broader macroeconomic factors such as energy prices, fiscal borrowing, and global risk conditions continue to influence currency movements, the tariff adjustment provided measurable relief to trade-sensitive sectors and capital markets.

FAQ (Frequently Asked Questions)