The Indian Rupee (INR) faces intense selling pressure against the US Dollar (USD) at open on Thursday. The USD/INR pair jumps to near 90.40 as the Indian Rupee slumps amid uncertainty surrounding trade talks between the United States (US) and India.
Investors remain cautious about whether the US and India will reach a consensus after the two-day meeting, which started on Wednesday, following the arrival of Deputy US Trade Representative Rick Switzer.
On Wednesday, US Trade Representative Jamieson Greer called India a “tough nut to crack” while testifying before the Senate Appropriations Committee, but added that the latest offer by New Delhi is the “best ever” the US has seen, India Today reported.
Meanwhile, the Global Trade Research Initiative (GTRI) has stated in a note that India must insist on balanced outcomes in the ongoing trade negotiations with the US and remain extremely cautious about extending concessions on agricultural crops or genetically modified (GMO) products, ANI reported. The agency added that Washington should first cut tariffs on Indian exports to 25% from 50% if it is serious about the deal.
Trade frictions between the US and India have dampened interest of overseas investors in the Indian equity market. Foreign Institutional Investors (FIIs) have remained net sellers in all trading days of December, and have offloaded stake worth Rs. 16,470.35 crore.
On the domestic front, investors await the retail Consumer Price Index (CPI) data for November, which will be released on Friday.
Daily digest market movers: US Dollar slumps after Fed’s policy outcome
- The Indian Rupee trades sharply lower against the US Dollar even as the latter underperforms, following the monetary policy announcement by the Federal Reserve (Fed) on Wednesday. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, strives to regain ground after refreshing seven-week low at open around 98.50.
- On Wednesday, the Fed lowered interest rates by 25 basis points (bps) to 3.50%-3.75%. The Fed was widely expected to do so as US labour market conditions remains weak for almost a year.
- The Fed’s dot plot showed that policymakers see only one interest rate cut in 2026 and Chairman Jerome Powell expressed that the “bar for further monetary easing is very high and we [The Fed] are “well positioned to wait to see how the economy evolves”.
- While market participants had already priced in a 25-bps interest rate reduction, and Fed’s Powell has not explicitly endorsed further rate cuts, the major factor that led to a sharp decline in the US Dollar appears to be comments from Powell pointing to cooling inflation expectations.
- “Evidence is growing that services inflation has come down, and goods inflation is entirely due to tariffs,” Powell said and added, “If there are no new tariff announcements, inflation from goods should peak in Q1.” Before the policy announcement, investors had anticipated that the Fed would announce a pause on further interest rate cuts as inflationary pressures have remained well above the 2% target.
Technical Analysis: USD/INR aims to revisit all-time high near 90.70
USD/INR trades 0.45% higher at 90.54 on Thursday. The pair holds above a rising 20-day Exponential Moving Average (EMA) at 89.7316, keeping the short-term trend pointed higher. The 20-day EMA has steepened in recent sessions, reinforcing trend support.
The 14-day Relative Strength Index (RSI) stands at 67.6, turns up after a pullback, confirming bullish momentum.
Momentum would stay constructive while price action remains north of the rising 20-day EMA. A sustained close above that dynamic support would keep dips shallow and could extend the advance towards 92.00, whereas a break back below it would soften the bullish tone and open the downside towards the December 1 low at 89.51.
(The technical analysis of this story was written with the help of an AI tool)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.