MUMBAI, April 2 (Reuters) - The Indian rupee weakened on Wednesday, retreating from a year-to-date peak hit last week, with traders expecting the currency to maintain a downward bias in the run up to sweeping U.S. tariff announcements later in the day.
The rupee was at 85.6025 against the U.S. dollar, down nearly 0.2% on day, kicking off a week truncated by local holidays on Monday and Tuesday.
While the rupee had rallied to a peak of 85.40 on Friday and outperformed its Asian peers last month, analysts reckon that looming tariffs could turn up the heat on the currency.
"We think markets are underpricing the risk of reciprocal tariffs on India ... think the risk-reward for USD/INR skews higher from current levels," MUFG Bank said in a note. The bank expects the rupee to weaken to 86.80 in the April-June quarter.
Trump has flagged April 2 as "Liberation Day" for his most ambitious actions on trade yet, which could upend more than half a century of global trade norms.
Reciprocal tariffs on countries that impose duties on U.S. goods would take effect immediately after Trump announces them, while a 25% tariff on auto imports will take effect on April 3, according to a White House official.
The rupee could also face headwinds in the latter half of Wednesday on account of anticipated dollar outflows, a senior trader at a Mumbai-based bank said.
The trader reckons that the could weaken to 85.75 and a negative surprise on U.S. tariffs could open up room to a fall towards 86.50.
The dollar index was steady 104.2 while Asian currencies were mostly rangebound on Wednesday.
While tariffs remain the focus for markets this week, U.S. labour market data, due on Friday, will also be key to gauge how trade policy changes impact the world's largest economy.
Reporting by Jaspreet Kalra; Editing by Sonia Cheema
Source: Reuters