As the dollar index and oil prices plummeted due to worries of a US recession after the announcement of reciprocal tariffs, the Indian rupee saw significant gains on Friday, closing below 85 versus the US dollar.

This is the first time the rupee has fallen below 85 versus the dollar since December 2024. The rupee entered the trading day at 85.04 and was trading at 84.99 in the early going, up over 40 paise from the previous close of 85.44.

The decline in crude oil prices and the dollar index’s deterioration as a result of US President Donald Trump’s reciprocal tariff are the causes of the rupee’s increase against the dollar.

The dollar index, which compares the value of the US dollar to the currencies of the six main foreign currencies, has fallen precipitously since Trump announced the tariffs—it is now at 101.70.

The dollar index was trading at 104 on Thursday, the day the tariffs were announced.

Experts claim that since President Trump’s tariffs are higher than anticipated, there is a chance that the US economy may enter a recession, which would weaken the currency.

The steep drop in crude oil prices is one factor contributing to the rupee’s strength against the dollar. The price of a barrel of Brent oil is still at 69.64.

India saves a significant amount of foreign currency whenever the price of crude oil drops since it imports more than 80% of its needs. It facilitates rupees’ appreciation vs the dollar.

The rupee has sharply recovered versus the dollar, according to Jateen Trivedi, VP Research Analyst-Commodity and Currency at LKP Securities. The rupee may fluctuate between 85 and 85.90 vs the dollar due to global factors and the influx of FIIs. When compared to other world currencies, the Indian rupee’s performance in FY25 was rather steady, with all of the main currency pairings being impacted by a rising dollar.

According to a Bank of Baroda (BoB) study, a comeback in the rupee towards the close of the year was bolstered by a reversal in dollar strength and FPI inflows into debt. The local currency recovered as much as 2.4% in a single month.