Indian Rupee Opens Higher as Trump Pauses Tariffs on Canada and Mexico

The Indian rupee showed signs of recovery on February 4 after reaching a historic low in the previous trading session. This rebound came following an announcement by former U.S. President Donald Trump, who decided to suspend proposed tariffs on Canadian and Mexican imports for 30 days. The move provided some relief to global markets, leading to a slight weakening of the U.S. dollar.

Rupee Rebounds After Historic Decline

On February 3, the Indian rupee breached the 87-mark for the first time against the U.S. dollar. This sharp depreciation followed Trump's imposition of a 25% tariff on Canadian and Mexican imports, along with a 10% tariff on Chinese goods. The unexpected policy shift sent shockwaves through global currency markets, intensifying concerns about a trade war and prompting investors to seek safe-haven assets such as the U.S. dollar.

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However, late on February 3, Trump reversed course and announced a temporary pause on the tariffs, citing discussions with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum. The leaders reportedly agreed to enhance border security cooperation with the U.S., which played a role in Trump's decision to reconsider the trade restrictions.

Market Reactions and Rupee Performance

Following the tariff suspension, the rupee opened at 87.0300 against the U.S. dollar on February 4, improving from its previous close of 87.1950. Analysts noted that the rupee’s appreciation was driven by a slight decline in the U.S. dollar index, which tracks the greenback’s strength against six major global currencies. The index eased to 108.750 in early trading, down from 108.990 at the end of the prior session.

Global Trade Implications and Economic Outlook

The temporary suspension of tariffs has offered a brief respite to the Indian rupee and broader financial markets. However, market participants remain cautious as uncertainties persist regarding potential trade negotiations between the U.S., Canada, Mexico, and China. If the 30-day pause does not lead to a long-term resolution, fresh volatility could impact currency markets once again.

The Trump administration’s original tariff plan included a 25% levy on all Mexican imports and most Canadian goods, excluding energy products, which would have faced a lower 10% duty. The abrupt policy reversal highlights the administration’s shifting approach to trade relations, underscoring the need for businesses and investors to stay alert to future developments.

Conclusion

While the Indian rupee has shown signs of stability following Trump's tariff suspension, the market remains watchful of any further policy changes. Investors will closely monitor diplomatic discussions between the U.S. and its North American trading partners, as well as any potential negotiations with China. The next few weeks will be crucial in determining whether the rupee can maintain its recovery or face renewed downward pressure amid evolving trade policies.

Source: Moneycontrol