Rupee strengthened this week on the ​back of nascent optimism regarding a US-Iran peace deal but ‌renewed hostilities threatened to yet again sway the ​outlook for Asian currency.

Volatility expectations for ⁠the rupee drifted higher as investors remained on tenterhooks for the next chapter in the more than two-month-long war that had ‌upended the macroeconomic outlook for oil importers such as India.

A flare-up in fighting occurred ‌on Thursday as Washington awaited a response from ‌Tehran ⁠to its proposal to end the conflict. US ⁠President Trump said a ceasefire is still in effect.

The rupee declined nearly 94.70 to the dollar before paring losses to end ​the session at 94.40, ‌up 0.4 per cent week-on-week.

The currency declined 0.2 per cent from the previous close while the 1-month implied volatility for the dollar-rupee rose to 5.7 per cent, the highest since mid-April.

Price action ‌on Friday had a "swing like feel to ​it with support (for USD/INR) consistently emerging around 94.40 while state-run banks were active around the ⁠94.70 mark," a trader at a foreign bank said.

If optimism on a US-Iran deal is misplaced yet again, ‌the dollar would have plenty of upside room to recover with "a good chance investors will prove more cautious and won’t jump as aggressively into de-escalation trades," analysts at ING said in a note.

India is among the most exposed to economic risks arising around prolonged ‌conflict in the Middle East as it imports a majority ​of its energy needs. Brent crude was at $100.7, down nearly 7 per cent this week.

Shares in Mumbai ⁠declined 0.6 per cent while the yield on the 10-year benchmark note ⁠rose 4 basis points.

Investors await a key US labour market report due later in the ‌day. Next week, the focus will be on India's consumer inflation data for April, alongside news-flow ​surrounding the Iran war.

Published on May 8, 2026