The Indian rupee is poised to remain under pressure in the final weeks of 2025 as subdued capital inflows and ongoing uncertainty over a U.S.-India trade deal weigh on investor sentiment. The currency hit a record low of 90.55 per dollar before closing at 90.4150 on Friday, marking a 0.5% weekly decline and putting it on track for its worst yearly performance since 2022.

Despite a third consecutive weekly decline in the dollar index, fueled by expectations of further policy easing by the U.S. Federal Reserve, the rupee saw little relief. Analysts cite portfolio outflows, a wider current account deficit, and muted central bank intervention as key drivers behind its underperformance relative to emerging-market peers. Goldman Sachs analysts noted that in the absence of a breakthrough in trade negotiations with the United States, the rupee could continue drifting lower in the near term.

Traders expect the rupee to trade in a range of 89.80 to 90.80 this week, with volatility likely to increase as year-end trading activity thins.

Bond Markets Under Pressure

Indian government bond yields also reacted to foreign selling and central bank activity. The 10-year benchmark 6.48% 2035 bond yield rose 10 basis points last week to settle at 6.5931%, marking the largest weekly increase in nearly four months. Heavy selling by foreign investors and a spike in overnight index swap rates contributed to the surge in yields.

The Reserve Bank of India’s recent bond purchases provided limited relief. Last week, the RBI bought 500 billion rupees of bonds at higher-than-expected cutoff prices, offsetting some of the selling pressure. Traders will continue monitoring the RBI’s upcoming bond interventions and foreign portfolio activity as the year draws to a close. In the first two weeks of December, foreign investors net sold bonds worth over 54 billion rupees, while foreign banks added net sales of 30 billion rupees.

Wontae Kim, portfolio manager at Western Asset Management, noted that Indian yields remain attractive relative to regional peers despite hedging costs. “In the Asian context, Indian yields are generally higher, and we remain overweight on government bond duration,” he said.

Key Economic Events This Week

Investors will also be watching several important economic indicators in the coming days:

  • India November WPI inflation – December 15, Monday (12:00 p.m. IST)
  • December HSBC manufacturing, services, and composite Flash PMI – December 16, Tuesday (10:30 a.m. IST)
  • U.S. November non-farm payrolls and unemployment rate – December 16, Tuesday (7:00 p.m. IST)
  • October U.S. retail sales – December 16, Tuesday (7:00 p.m. IST)
  • December S&P Global manufacturing, services, and composite Flash PMI – December 16, Tuesday (8:15 a.m. IST)
  • November U.S. consumer price inflation – December 18, Thursday (7:00 p.m. IST; Reuters poll: 3%)
  • Initial weekly U.S. jobless claims – December 18, Thursday (7:30 p.m. IST)
  • December Philly Fed Business Index – December 18, Thursday (7:30 p.m. IST)
  • November U.S. existing home sales – December 19, Friday (8:30 p.m. IST)
  • December University of Michigan consumer sentiment – December 19, Friday (8:30 p.m. IST)

Overall, the rupee and bond markets are navigating a challenging environment, with foreign flows, trade negotiations, and central bank policies likely to dictate performance through the year-end period.