US dollar rate drops ahead of Donald Trump’s inauguration; Indian Rupee gains

US dollar declined against the Asian currencies on Monday, ahead of the US President Donald Trump’s inauguration. The Indian rupee appreciated against the US dollar, tracking the greenback’s broader weakness.

The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading lower by 0.30% at 109.02. Meanwhile, rupee appreciated 14 paise to 86.46 against the US dollar, following a positive trend in domestic stock market and Asian currencies.

At the interbank foreign exchange, the rupee opened at 86.48 and touched 86.46 against the greenback, registering a gain of 14 paise over its previous close. On Friday, the rupee had settled at 86.60 against the US dollar.

Asian currencies were mostly higher, with the Korean won and Chinese yuan leading gains.

With Donald Trump scheduled to return to the White House later today, currency markets are expected to closely monitor policy announcements from Washington throughout the week. Trump has committed to signing a series of executive orders on his first day in office.

“Trump’s policies are likely to inject fresh volatility into the DXY. His ‘America First’ trade agenda and potential geopolitical tensions could drive risk aversion, pushing the dollar higher in the short term. On the other hand, market concerns about isolationist policies and their global economic implications may temper gains,” said MD – Amit Pabari, Managing Director, CR Forex.

Rising tariffs and sanctions could increase safe-haven demand for the dollar. Concerns over trade disruptions, a potential slowdown in global growth, and implementation of lower tariffs than proposed may weigh on the dollar index, he added.

As markets digest Trump’s inaugural speech and policy signals, Pabari believes the DXY is poised for significant movement. He expects dollar index to trade within a range of 110.50 on the upside and 108.50 on the downside. A breach on either side will likely trigger significant momentum.

Rupee Outlook

On the domestic front, India’s forex reserves dropped by $8.714 billion to $625.871 billion in the week ended January 10, reflecting the RBI’s efforts to protect the rupee from excessive depreciation.

However, the RBI has committed to daily Variable Rate Repo auctions to ease liquidity pressures amid a ₹2.22 trillion banking system deficit, which has created additional strain on the rupee. The situation is further complicated by FII outflows amounting to $6.4 billion, intensifying liquidity deficits. Yet, the upcoming Punjab and Sind Bank plan to raise ₹2,000 crore through QIP offers a glimmer of relief for the rupee, potentially stabilizing the situation, Pabari noted.

Given these contrasting pressures, he believes the short-term volatility is inevitable as markets adjust.

“The rupee is expected to trade within a volatile range of 86.20 to 86.80 ahead of key events in the global and domestic economic landscape,” said Pabari.

Meanwhile, gains in domestic equities supported the local currency. The Indian stock market benchmark indices, Sensex and Nifty 50 were trading 0.7% higher each.  

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