The Indian rupee began the week on a stronger footing, rising by 10 paisa in early trade on February 9 as markets reacted to additional clarity over the interim trade understanding between India and the United States announced late last week.

The currency was trading at 90.56 against the US dollar compared to 90.66 in the previous session. The move extends last week’s gains when the rupee rallied over 1 percent following the first announcement of the preliminary agreement between the two countries.

The improvement in sentiment stems from an interim arrangement under which tariffs are set to be reduced to 18 percent from 25 percent, alongside India agreeing to increase imports from the United States. Importantly, a 25 percent levy imposed on India due to its purchase of Russian oil is set to be removed. These developments are being interpreted by market participants as a potential trigger for renewed foreign interest in Indian financial assets.

This comes at a time when the Reserve Bank of India, in its February policy review, chose to maintain status quo on interest rates and retained its neutral stance. At the same time, the central bank raised its inflation forecasts for FY26 and for the first two quarters of FY27, signaling that price pressures remain a concern even as growth conditions hold steady.

The interplay between improving external sentiment and cautious domestic monetary signals is now defining the rupee’s trajectory.

Currency traders point out that while the trade development is supportive for the rupee, strong importer demand is acting as a counterbalance. The 90 per dollar level is widely viewed by importers as an attractive point to hedge future payables. As a result, whenever the rupee attempts to strengthen towards that level, dollar buying from corporate treasuries picks up, limiting further gains.

Market participants also expect the RBI to remain active. According to analysts at Finrex Treasury Advisors, the central bank has been operating on both sides of the market. It has been selling dollars during phases of excessive depreciation to prevent disorderly weakness, while also stepping in to curb rapid appreciation after the trade deal announcement. This dual approach is helping keep volatility contained and preventing the currency from making sharp directional moves.

In the near term, traders expect the rupee to hover around the 90.20 per dollar zone, with importers likely to buy on dips and the RBI smoothing extreme movements.

The significance of this development goes beyond a routine currency move. The rupee’s strength is being driven not by domestic rate action but by a geopolitical and trade-related development, which could influence capital flows into India over the coming months.

If the interim trade understanding translates into sustained improvement in bilateral trade relations and reduction in tariff frictions, foreign portfolio investors may see lower geopolitical and policy risk in Indian markets. That, in turn, can support both equity and debt inflows, indirectly aiding the rupee.

At the same time, the RBI’s upward revision of inflation projections suggests that monetary policy may not turn accommodative soon. This keeps interest rate differentials supportive for the rupee without creating expectations of sharp appreciation.

A stable to slightly stronger rupee is generally positive for sectors dependent on imported inputs such as oil marketing companies, electronics manufacturers, and capital goods importers. It can also help moderate imported inflation, especially in crude oil and commodity-linked inputs.

However, exporters in sectors such as IT services, pharmaceuticals, and textiles may face mild pressure on realizations if the rupee strengthens further from current levels.

Bond markets may also take comfort from the potential for foreign inflows if trade relations improve, which could support demand for Indian government securities.