Rupee Appreciates 40 Paise Against US Dollar Amid US-Iran Peace Hopes, RBI Swap Auction in Focus

25 May 2026 , 12:43 PM

The Indian rupee strengthened sharply against the US dollar on Monday, appreciating by 40 paise in early trade as global risk sentiment improved following optimism around a possible peace agreement between the United States and Iran. The domestic currency opened at 95.36 against the US dollar and further strengthened to 95.20 during early interbank forex trading.

The rupee’s rally comes after a strong performance in the previous trading session, where it had already gained 75 paise to settle at 95.60 per dollar. Market participants believe easing geopolitical tensions, softer crude oil prices, and progress in India-US trade discussions supported the currency’s upward momentum.

US-Iran Peace Deal Boosts Global Sentiment

Forex traders attributed the rupee’s appreciation mainly to reports suggesting that the United States and Iran have “largely negotiated” a peace pact aimed at ending the nearly three-month conflict. However, both countries reportedly continue to differ on key strategic matters, including the blockade of the Strait of Hormuz.

US President Donald Trump reportedly urged negotiators to avoid rushing the agreement and instead focus on securing a long-term and sustainable peace arrangement. The developments helped improve investor confidence globally, reducing demand for safe-haven assets like the US dollar.

India-US Trade Agreement Supports Rupee

Investor sentiment also improved after positive developments emerged regarding the proposed interim trade agreement between India and the United States. US Secretary of State Marco Rubio stated that the trade pact is nearing finalisation and is expected to benefit both nations significantly.

Rubio is currently on a four-day visit to India and held discussions with External Affairs Minister S. Jaishankar on several strategic issues, including trade, energy cooperation, defence ties, and critical minerals.

The progress in bilateral trade talks boosted optimism around India’s economic outlook and strengthened support for the rupee in the currency market.

RBI’s $5 Billion Swap Auction in Focus

Market participants are now closely watching the Reserve Bank of India’s scheduled $5 billion USD/INR buy-sell swap auction on Tuesday. The RBI’s liquidity operation is expected to inject approximately ₹42,000–43,000 crore into the banking system without creating additional inflationary pressure.

Treasury experts believe the central bank may continue to remain active in the forex market to curb excessive volatility in the US dollar and maintain stability in the rupee.

The RBI’s actions are considered crucial at a time when global currency markets remain highly sensitive to geopolitical developments and crude oil price fluctuations.

Dollar Index and Crude Oil Prices Decline

The US dollar index slipped 0.20% to 99.04, which further supported emerging market currencies, including the Indian rupee.

Meanwhile, Brent crude oil prices witnessed a sharp decline of 5.43%, falling to $97.92 per barrel. Lower crude prices are seen as positive for India, as the country imports a significant portion of its oil requirements. A decline in oil prices helps reduce the import bill and eases inflationary concerns, indirectly supporting the rupee.

Indian Equity Markets Rally Sharply

Indian benchmark equity indices also witnessed strong buying momentum amid improving global cues.

• Sensex surged 908.98 points to 76,317.85
• Nifty gained 262.65 points to 23,977.70

The sharp rally in equities reflected renewed investor confidence despite continued foreign institutional selling.

According to exchange data, Foreign Institutional Investors (FIIs) sold equities worth ₹4,440.47 crore on Friday.

India’s Forex Reserves Decline

The latest RBI data showed that India’s foreign exchange reserves declined by $8.094 billion to $688.894 billion for the week ended May 15. In the previous reporting week, forex reserves had increased by $6.295 billion to $696.988 billion.

Despite the recent decline, India’s forex reserves remain at comfortable levels, providing a strong buffer against external economic shocks and currency volatility.

Outlook for the Rupee

Analysts believe the rupee may continue to remain stable in the near term if geopolitical tensions ease further, crude oil prices remain soft, and foreign investor confidence improves. However, volatility may persist due to global macroeconomic uncertainties and central bank interventions.

The RBI’s upcoming swap auction and further developments in the US-Iran negotiations will remain key triggers for the currency market in the coming sessions.

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