The Indian rupee breached the 87 per dollar mark for the first time on Monday (February 3), weakening from Friday’s (January 31’s) close of 86.61/$. The decline came amid rising global trade tensions after US President Donald Trump imposed fresh tariffs on Mexico, Canada, and China.

Trump’s executive orders imposed a 25% tariff on Mexican and most Canadian imports and a 10% tariff on Chinese goods. Mexico and Canada retaliated, while China warned of countermeasures.

The offshore Chinese yuan, which rupee traders track, declined 0.54% to 7.3585 per dollar, adding pressure on emerging market currencies.

The US dollar strengthened against major peers, and US Treasury yields rose.

The rupee’s slide followed these developments, with traders watching for further cues from global markets.

“If the tariff war escalates, the rupee could see further downside,” Dilip Parmar, FX research analyst at HDFC Securities was quoted as saying in a Reuters report.

The Reserve Bank of India (RBI) will announce its policy decision on Friday (February 7) and is expected to cut rates by 25 basis points. The benchmark 10-year bond yield ended at 6.7001% on Friday (January 31), slightly lower for the week.

Traders expect the yield to move within the 6.62%-6.74% range until the RBI’s decision.

The government has set a lower fiscal deficit target of 4.4% of GDP for FY26, down from 4.8% in the current year.

However, it increased gross borrowing to ₹14.82 lakh crore for next year, up from ₹14.01 lakh crore this year.

“Sticking to fiscal consolidation while providing tax relief is positive and could improve India’s rating outlook,” said Mahendra Kumar Jajoo, CIO – Fixed Income at Mirae Asset Investment Managers India.

He expects the RBI to adopt a more accommodative policy stance.

Markets now await further signals from the RBI and global developments to gauge the rupee’s next move.

–With Reuters inputs