The Indian rupee strengthened to its highest level in August, buoyed by optimism around government-led tax reforms and easing concerns due to US tariff escalation. The currency gained 19 paise in early trade on Tuesday, opening at 87.24 and touching a high of 87.20 against the US dollar at the interbank foreign exchange market, compared with its previous close of 87.39.

Analysts said sentiment turned positive as Prime Minister Narendra Modi’s planned GST rationalisation is expected to boost consumption and economic growth. The prospect of tax cuts on essential goods, particularly in areas like mobile phones—seen as the “primary tool of digital access” for over 90 crore Indians—has lifted both investor and consumer confidence.

Global Winds and Domestic Resilience

The rupee’s rise came despite weakness in most Asian peers, pressured by climbing US bond yields. The 10-year US Treasury yield touched a two-week high on Monday, typically a dampener for emerging market currencies. Yet, the Indian unit bucked the trend, helped by foreign portfolio investors (FPIs) resuming equity purchases. FPIs bought equities worth ₹550.85 crore on Monday, propelling the Sensex up 203.44 points to 81,477.19 and the Nifty higher by 53.4 points to 24,930.35 in early trade.

Geopolitical developments also played a role. Recent talks between US President Donald Trump, Russian President Vladimir Putin, and Ukraine’s leadership have raised hopes of a peace breakthrough. “This appears to reduce the likelihood of additional tariffs or sanctions on India related to Russian oil imports,” Nomura noted in a market commentary.

Tariff Risks Still Loom

While the rupee’s performance was encouraging, economists cautioned that risks remain. A proposed 25% tariff on Indian goods by the US, set to take effect on August 27, could weigh on the outlook. Any shift in American trade policy or US Federal Reserve signals, particularly from Chairman Jerome Powell’s upcoming speech, may also sway the currency’s trajectory. The dollar index, which measures the greenback’s strength against a basket of six currencies, was trading higher, reflecting global demand for safe assets.

Market participants said the Reserve Bank of India may have subtly intervened to stabilise the rupee at key levels. Overall, the combination of domestic tax reforms, foreign investor inflows, and easing geopolitical anxieties has given the Indian currency fresh momentum. The real test for the rupee lies ahead—its strength will be tested by shifting trade winds and the Fed’s next move.