- USD/INR slides to near two-week low amid broad US Dollar weakness and strong Rupee demand.
- Rupee supported by FII inflows, equity market gains, and falling Crude Oil prices.
- DXY holds near a three-year low as Trump’s Fed criticism and soft US GDP fuel rate cut bets.
The Indian Rupee (INR) strengthens further on Friday, riding a wave of US Dollar (USD) weakness, as the Greenback slides further amid political noise and soft economic prints. US President Donald Trump’s fresh criticism of Federal Reserve (Fed) Chair Jerome Powell, paired with weaker-than-expected US Q1 Gross Domestic Product (GDP) data released on Thursday, is weighing heavily on the Greenback. As a result, the US Dollar Index (DXY) remains pinned near a three-year low, boosting demand for emerging market currencies such as the Rupee.
USD/INR is under pressure, slipping to near two-week lows around 85.50 during the European hours. The US Dollar Index (DXY), however, remains steady near 97.24, hovering close to the three-year low marked on Thursday, as traders await May’s core Personal Consumption Expenditures (PCE) Price Index data, the Fed’s preferred inflation metric, set to be released at 12:30 GMT.
President Trump’s pointed criticism of Fed Chair Powell has sparked renewed doubts about the central bank’s independence, prompting traders to increase interest rate cut bets. There’s growing chatter that Trump could try to influence policy through a “shadow chair”—an unofficial figure position to influence the Fed’s policy direction until Jerome Powell’s term ends in May 2026.
Markets were quick to react, with traders on Thursday boosting bets on interest rate cuts. According to CME Group data, the probability of three cuts this year has climbed to around 60%, up from just two cuts expected earlier in the week.
Market Movers: Rupee rallies on US Dollar weakness, subdued Oil prices, and FII inflows
- The Indian Rupee is staging a solid recovery following the ceasefire between Iran and Israel. On Friday, the Rupee appreciated by 23 paise to 85.49 against the US Dollar, supported by strong foreign institutional investor (FII) inflows and a risk-on tone in domestic equity markets.
- On the Equity front, Indian equity benchmarks ended higher for the fourth consecutive session on Friday, with the Nifty50 closing at 25,637—its highest level since September 2024—led by broad-based buying except in IT and realty sectors. The Sensex gained 303 points to end at 84,058.
- Lower Crude Oil prices are also aiding the Rupee’s recovery by lowering import costs and easing the trade deficit, especially after the Iran-Israel ceasefire eased geopolitical tensions. Both WTI and Brent Crude have dropped around 12% this week, with WTI trading near $65.20 and Brent around $67.05 at the time of writing.
- Trade negotiations between India and the US have reportedly stalled over disagreements on import duties for auto parts, steel, and agricultural products, said Indian officials with direct knowledge. This setback dims hopes of reaching a deal before President Trump’s July 9 deadline to impose reciprocal tariffs. While US officials have repeatedly stated they are close to finalizing a trade agreement with India, no official announcement has been made so far, keeping markets in wait-and-watch mode.
- US President Donald Trump may extend the looming deadlines for reimposing higher tariffs on imports from several countries, the White House said on Thursday. The tariffs, initially scheduled to take effect on July 8 and 9, are no longer viewed as fixed. White House Press Secretary Karoline Leavitt told reporters the dates are “not critical” and that while an extension is possible, the final decision will be made by the President.
- President Trump’s sweeping budget bill is heading for a key test in the Senate, with voting expected to begin as early as Friday. The challenge comes after the Senate parliamentarian ruled that proposed Medicaid changes in the bill don’t meet the criteria for the fast-track budget process Republicans are using. President Trump is pushing hard for Senate approval of his major budget package before the July 4 deadline. This deadline is not legally binding, but is a political goal set by President Trump.
- The Greenback remains under heavy pressure following Trump’s latest criticism of the Fed, alongside mounting concerns over the US’s trade and fiscal outlook. The US Dollar Index (DXY) has fallen more than 10% year-to-date and is on track for its steepest first-half decline since the start of the free-floating currency era in the early 1970s.
Technical analysis: USD/INR breaks rising wedge, eyes deeper pullback
The USD/INR pair has decisively broken below the lower boundary of the rising channel it had been respecting since early May, indicating that bears have the upper hand. The pair is currently trading around 85.48, slipping below the 21-day Exponential Moving Average (EMA) at 85.84—a bearish technical signal.
The break below the psychological support at 86.00 has opened the door for a test of the next horizontal support near 85.00, marked by previous consolidation levels. A strong daily close below the current level of 85.50 could accelerate downside momentum toward 85.00 and possibly 84.50 in the coming sessions.
The Relative Strength Index (RSI) has dropped to 44.88 and continues to slope downward. This confirms waning bullish momentum and hints at more downside ahead unless buyers reclaim the 85.85–86.00 zone.
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.
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