The Indian rupee, along with its regional Asian counterparts, experienced a decline on Tuesday, May 27, 2025, as the U.S. dollar strengthened against major currencies and Asian equity markets saw a downturn. Traders also indicated that month-end dollar demand from importers exerted additional downward pressure on the local currency, which closed at 85.33 against the U.S. dollar, marking a 0.3% depreciation for the day.

In recent trading sessions, the rupee has demonstrated significant volatility, including a sharp fall past the 86 mark last week, followed by a recovery to a two-week high of 84.78 on Monday, only to relinquish these gains subsequently. The currency's very-near-tenor implied volatility, a measure of expected future price swings, has risen, with the spot-week gauge exceeding 6%, considerably above the year-to-date average of approximately 4.5%. According to an FX trader at a foreign bank, the rupee appears to be establishing a trading range between 84.80 and 85.80, and these choppy movements may continue unless a significant breakout occurs on either side of this range.

The U.S. dollar index saw an increase of 0.4% to 99.3 on Tuesday. Concurrently, 10-year U.S. Treasury yields rose, a movement that mirrored a notable price rally in longer-term Japanese debt following reports that Tokyo might consider reducing the issuance of super-long bonds. Despite this daily uptick, the dollar is on track for its fifth consecutive monthly decline against major peer currencies. This longer-term weakness is attributed to investor concerns regarding uncertain U.S. trade policies and the nation's fiscal health, which have negatively impacted appetite for U.S. assets.

Market analysis from ING bank suggests that the U.S. dollar is increasingly exhibiting characteristics typically associated with an emerging market currency. The bank's note highlighted that investors are now intensely focused on the sustainability of U.S. public finances, are closely monitoring capital flows, and are compelled to factor in unpredictable policy moves from the U.S.

Other Asian currencies also broadly declined on Tuesday. The offshore Chinese yuan weakened by 0.2%, while the Malaysian ringgit led the losses in the region, falling by nearly 0.5% against the U.S. dollar.

Reflecting the negative sentiment across regional markets, India's benchmark equity indexes, the BSE Sensex and the Nifty 50, both concluded the trading day lower by approximately 0.7% each. This downturn in Indian stocks was consistent with the general decline observed in most other Asian stock markets.