The Indian rupee headed into 2026 on a poor footing, after registering its quickest annual fall in three years, caught in a vice grip by massive foreign party equity withdrawals and lack of a trade pact with the United States. These aspects made the currency not to be included in the wider rally experienced in majority of the Asian markets.
Rupee closed the year at 89.87 to the US dollar which is a drop of 4.72 per cent. per year. This was the lowest it has performed since 2022 when the currency had fallen by almost 10 per cent. The rupee has been under consistent pressure through out the year and has made back-to-back record lows and momentarily crossed the 91-per-dollar mark which indicates perennial depreciation fears.
The plight of rupee is contrasted to the world scenario in 2025. The current year was less aggressive than the previous year, 2022, when the aggressive rate increases by the US Federal Reserve initiated a powerful dollar rally. The dollar index dropped by approximately 9.5 per cent as the Federal Reserve trended towards the interest rate reduction, whereas the most of the Asian currencies were backed by restrictive trade policies adopted by the US.
Although such positive global indicators, the rupee performed poorly relative to those of the region. The reasons cited by the analysts to explain why the currency is weak include the outflow of foreign portfolio investors out of the Indian equities and the uncertainty of whether there will be a US trade deal. According to market participants, the recovery outlook of the rupee in 2026 will rely on the result of the trade negotiations, overturning of the capital flows, and the general risk sentiment across the globe.
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