INR’s Vanishing Act: How a Perfect Storm Toppled the Rupee Against Sterling
In three months, the Indian Rupee shed 11.1% of its value against the British Pound. That’s not a currency move—it’s a disappearing act. Behind this dramatic slide lies a tangled web of monetary shocks, global trade barbs, oil price traps, and a central bank forced to play defense. Let’s lift the curtain on the forces that turned the INRGBP pair into a high-voltage drama.
The Dominoes Fell: It Started with the Dollar
To understand why the rupee tumbled so sharply, start with the world’s real reserve currency: the US dollar. As the Federal Reserve hiked rates to 5.5% and signaled no cuts until September, capital fled emerging markets for safer, higher-yielding shores. The Dollar Index surged to 109.8, dragging the rupee lower—not just against the dollar, but also against cross rates like the pound.
Foreign investors yanked money from Indian assets. Foreign Portfolio Investment (FPI) flows, which swung from a $20 billion net inflow in 2023 to flat in 2024, stalled completely, removing a key support for the rupee. When the world’s risk radar blinks red, the rupee takes the elevator down.
The Tariff Tsunami: Trump’s Trade Shockwaves
But the big twist came from Washington, not Mumbai. In August, the US unleashed a 50% tariff on Indian exports—targeting everything from textiles to electronics. Almost overnight, India’s export dreams to its second-largest market were put in a chokehold. The result? A record trade deficit of $37 billion in December, and a forecasted current account deficit (CAD) of 1.2% of GDP for FY26.
As export revenues shrank and import bills rose (with Brent crude hovering near $70/barrel), the rupee’s foundation crumbled. When global investors see a double whammy—shrinking exports and a ballooning import bill—they don’t wait around. The Rupee’s slide against the pound was swift and merciless.
Central Bank in the Crosshairs: RBI’s Balancing Act
The Reserve Bank of India tried to play the firefighter. Two repo rate cuts in 2025 (from 6.5% to 6.25%) aimed to soften the economic blow, but also made rupee assets less attractive. The RBI tapped into its $600+ billion reserve arsenal, intervening repeatedly to stem volatility. But FX buffers, however ample, are no match for global capital tides: when the external environment is this hostile, even the mightiest central banks can only smooth, not reverse, the trend.
There’s an irony here: every time the RBI stepped in, it blunted volatility but did little to change direction. The Rupee glided down, not crashed—but down it went nonetheless.
Pound’s Silent Strength: The Beneficiary in the Shadows
While the rupee was battered by external shocks, the pound was quietly gathering strength. The Bank of England, after cutting rates to 4.0%, signaled confidence in the UK’s inflation trajectory. UK GDP growth, projected at 1.3% for 2025, may be tepid, but lower inflation (3.6% for 2025, 2.6% for 2026) and a stable fiscal outlook gave international investors a reason to hold sterling.
Layer on top the newly minted India-UK Free Trade Agreement—expected to double bilateral trade to $100 billion by 2030—and the pound’s ascent against the rupee looks less like a fluke and more like a quietly orchestrated symphony.
Collateral Damage: Sector Winners and Losers
The rupee’s fall was not shared equally. Oil-importing sectors like airlines, petrochemicals, and FMCG companies saw input costs soar. Firms with large dollar-denominated debt, especially in IT and pharmaceuticals, felt the pinch as repayment burdens climbed. Meanwhile, export-oriented sectors gained a lifeline: a weaker rupee made Indian IT services, pharma, and textile goods more competitive in the UK and European markets—just as US doors slammed shut.
But don’t mistake this for a net positive. The pain for importers outweighed the relief for exporters. When a currency loses over 11% in a single quarter, the first to suffer are consumers and corporates with global exposure.
The Human Factor: Markets Hate Uncertainty
Geopolitics added kerosene to the fire. With Donald Trump back in the White House and an unpredictable tariff regime, global risk appetite for emerging markets plummeted. Add to that a volatile oil market—where a single drone strike can swing Brent by $3 overnight—and the rupee’s fate was sealed by a climate of “better safe than sorry.”
Meanwhile, India’s own macro narrative—robust private consumption, 7% GDP growth, and resilient banking sector—wasn’t enough to outweigh the tidal forces of global risk aversion. In FX, the home team rarely wins when the world’s giants are on the march.
Final Act: When the Rupee Slinks Away, It’s Never Just One Thing
The 11.1% plunge in INRGBP over three months wasn’t about a single policy, speech, or headline. It was the sum of relentless US dollar strength, a US-India tariff war, surging oil imports, an embattled central bank, and a pound buoyed by relative calm at home. In a world where every shock ricochets through capital flows and trade balances, the rupee’s vanishing act is a masterclass in interconnected risk. And in this new world order, the only certainty is that the next surprise is always closer than you think.