The Indian rupee staged an impressive rally on Friday, breaking through the psychologically important 85 barrier against the US dollar as global markets reacted violently to escalating trade tensions. The currency's surge came amid a perfect storm of falling oil prices and a collapsing dollar index.

Bloomberg data showed the rupee opening at 85.06 (Dh23.1771) - a remarkable 38 paise gain from Thursday's close of 85.44 (Dh23.2806). The bullish momentum continued in early trading, with the currency strengthening further to hit 84.99 (Dh23.1580), marking its strongest position since December 2024.

The dramatic moves followed Thursday's historic sell-off in the dollar index, which plunged nearly 2% - its worst single-day performance in over two years. Market analysts attributed the turmoil to growing fears that President Trump's aggressive new tariff proposals could trigger inflationary pressures while simultaneously slowing economic growth.

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The White House announced plans to implement sweeping tariffs including a universal baseline levy of 10% on all US imports, with even higher duties targeting India and several other trading partners specifically.

"These protectionist measures have left the dollar completely exposed," warned ING Bank analysts in their morning briefing note, adding that investors are increasingly concerned about potential damage to business confidence and economic activity levels.

The deteriorating outlook for US growth has caused traders to dramatically increase bets on Federal Reserve rate cuts this year, with money markets now pricing in four potential reductions beginning as soon as June - sending two-year Treasury yields tumbling to six-month lows.

Across Asian markets, currencies broadly strengthened against their American counterpart, led by South Korea's won showing particularly strong gains. Regional stock markets however extended their declines from Thursday's session amid ongoing risk aversion.

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