The Indian Rupee declined alongside most regional currencies on Tuesday after remarks from US President Donald Trump regarding trade tariffs strengthened the Dollar.

This followed a previous dip in the greenback due to a selloff in US technology stocks.

The Rupee closed at 86.5225 per Dollar, a 0.2% drop, marking its largest single-day percentage decline since 16^th January.

Most Asian currencies also weakened, with the offshore Chinese Yuan falling 0.4% to 7.28, while the Dollar index – measuring the currency against six major peers, edged up 0.1% to 107.9.

The Dollar strengthened following a Financial Times report that US Treasury Secretary Scott Bessent has been advocating for new universal tariffs on imports, starting at 2.5% and increasing by the same amount each month.

President Trump's comments about imposing tariffs on US copper and aluminium imports further bolstered the Dollar. On Monday, the dollar index had dropped to a five-week low of 106.96 amid a selloff in US tech stocks.

A trader at a foreign bank noted that with Trump's return to the White House, “volatility is set to persist in markets and the Rupee is unlikely to stay untouched,” Reuters reports.

As well as tariff concerns, sustained capital outflows have weighed heavily on the Rupee, as foreign investors have withdrawn over $8.5 billion from local stocks and bonds so far in January.

Dollar-Rupee forward premiums fell on Tuesday after the Reserve Bank of India (RBI) introduced several measures to address a liquidity crunch. Indeed, the 1-year Dollar-Rupee implied yield dropped by 11 basis points to 2.17%.

The central bank's “liquidity easing is a likely precursor to rate cuts,” according to Nomura. The measures “confirm that there has been a regime shift at the RBI, with the prioritisation of domestic rates over FX and a more flexible relative approach to managing the currency.”