Indian Rupee pares losses as mixed US PMI and dovish Fed Bowman weigh on US Dollar

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• Indian Rupee trims early losses after safe-haven flows lifted the Dollar on US strikes against Iranian nuclear sites.
• USD/INR climbed close to the psychological 87.00 level before reversing as mixed US PMI data capped Dollar strength.
• US PMI data painted a mixed picture — the Composite PMI dipped slightly to 52.8, the Services PMI eased to 53.1 from 53.7, while the Manufacturing PMI held steady at 52.
• India’s Composite PMI jumps to 61.0, beating forecasts and signaling robust economic momentum.

The Indian Rupee (INR) kicked off the week on a softer note, weakening against the US Dollar (USD) on Monday as investors flocked to the Greenback after the United States (US) launched airstrikes targeting Iranian nuclear facilities over the weekend.

The USD/INR pair held its ground throughout the European session on Monday, supported by safe-haven flows as traders closely monitored the situation in the Middle East. However, during the American session, the Rupee strengthened notably after mixed US PMI data and dovish remarks from Fed Bowman tempered US Dollar demand and improved broader risk sentiment. This shift, combined with robust domestic PMI figures and a cooling in Crude Oil prices, helped the Rupee erase earlier losses, pulling the pair back from the brink of the key 87.00 level. At the time of writing, USD/INR is trading around 86.54, reflecting the Rupee’s recovery.

Heightened geopolitical friction in the Middle East has rattled global markets to start the week after the US reportedly launched airstrikes targeting key Iranian nuclear sites, escalating an already volatile standoff involving Israel and Iran’s regional influence. The latest attacks have amplified concerns about potential retaliatory actions and a broader regional conflict that could disrupt Oil flows through the Strait of Hormuz, a crucial artery for global crude shipments. In response, Crude Oil prices spiked sharply at the weekly open, while investors sought refuge in the US Dollar, lifting it against emerging market currencies, such as the Indian Rupee.

India finds itself squarely in the line of fire whenever Oil spikes; any sustained surge in Oil prices is a double-edged sword — it widens the trade deficit, stokes imported inflation, and weakens the Rupee by pressuring the current account balance. On Monday, Brent Crude jumped above $81 per barrel in early Asia, fueling risk-off flows that pushed the INR lower against the Greenback. However, as traders reassessed the risk of immediate supply disruptions, Oil prices cooled back toward $75–77 per barrel, trimming the initial drag on the Indian Rupee. Still, with the risk of escalation hanging in the air, traders are likely to stay cautious, keeping the INR’s recovery attempts on a tight leash.

Market movers: Geopolitical fears, resilient domestic data, and RBI watch

• The Rupee has been under pressure, sliding to its weakest level in three months last week before staging a mild recovery to close at 86.59 on Friday. Despite Monday’s resilience, traders remain wary that a decisive break above the 87.00 mark — a level last seen in March — could spark sharper volatility in the currency market, potentially triggering capital outflows and complicating the inflation outlook. A sustained breach could also force policymakers to reassess their monetary policy stance to manage imported price pressure.
• The Reserve Bank of India (RBI) is expected to step in if the Rupee weakens further toward the key 87.00 per US Dollar mark, according to analysts at Australia & New Zealand Banking Group (ANZ) and MUFG Bank. The Rupee is currently the worst-performing Asian currency this quarter. “The 87 level is very much on the cards if Middle East tensions escalate and the crisis turns regional,” said Dhiraj Nim, currency strategist at ANZ. “That would be tantamount to a shock, and the RBI won’t like that. The RBI won’t be comfortable with anything beyond 87 per Dollar.”
• India PMI data surprises to the upside: India’s latest PMI figures provided a bright spot amid geopolitical jitters. Flash data showed the HSBC India Composite PMI rose sharply to 61.0 in June 2025 from 59.3 in May, comfortably beating market forecasts of 59.4 and notching its strongest print since April 2024. The Manufacturing PMI also surprised to the upside, climbing to 58.4 from 57.6 a month earlier, marking its highest level in two months and topping expectations of 57.7. Meanwhile, the Services PMI advanced to 60.7 from 58.8, indicating the fastest pace of growth in the sector since August.
• Global investors remained cautious on Monday amid fresh geopolitical tensions, keeping risk appetite subdued across markets. Most major equity indices in Asia and Europe traded lower but avoided sharp sell-offs. In India, benchmark indices ended in the red, snapping recent momentum as global uncertainty weighed on sentiment. The Sensex closed down 511.38 points, or 0.62%, at 81,896.79, while the Nifty slipped 140.50 points, or 0.56%, to settle just below the psychological 25,000 mark at 24,971.90.
• Additionally, India’s foreign exchange reserves rose by USD 2.294 billion to USD 698.95 billion for the week ending June 13, according to the Reserve Bank of India, providing a healthy cushion to absorb external shocks and support currency stability.
• Iran’s launch of multiple ballistic missiles targeting a US airbase in Al Udeid, Qatar, briefly spooked markets and stoked fears of a wider conflict in the Gulf region. However, despite the fresh escalation, both the US Dollar and crude oil prices slipped as traders reassessed the likelihood of immediate supply disruptions and focused instead on signs of softer US economic momentum. The Rupee found some breathing room from the easing crude prices and weaker Dollar, although geopolitical risks remain a key wildcard for near-term volatility.
• Brent crude, the international benchmark, tumbled nearly 6% to around $71.11 a barrel after Iran launched a missile strike targeting the Al Udeid US airbase near Doha, Qatar. Earlier on Monday, Brent had surged as high as $81.40, driven by fears that Iran might attack oil infrastructure or try to close the strategic Strait of Hormuz in retaliation for recent US and Israeli strikes on its nuclear sites. However, as Qatar reported that its defenses successfully repelled the attack and immediate supply disruptions looked unlikely, oil prices sharply reversed course.
• West Texas Intermediate (WTI), the US benchmark, mirrored Brent’s slide, dropping below $70 a barrel, erasing gains built up over the past ten days following Israel’s surprise attack on Iran’s nuclear facilities. The swift pullback has eased some of the pressure on energy-importing economies, such as India, offering short-term relief for the Rupee, but the market remains sensitive to any fresh escalation in the region.
• India’s heavy reliance on imported Crude means any sustained spike in Oil prices can have sweeping economic consequences. The country sources about 85% of its Oil needs from overseas markets, leaving it highly exposed to global price swings. According to a Reuters report citing fresh government data, India’s crude oil imports surged to a record 23.32 million metric tonnes in May, marking a 9.8% MoM increase as refiners ramped up purchases to meet robust domestic demand. This dependency amplifies the currency’s vulnerability to geopolitical shocks and keeps the focus firmly on Brent’s trajectory.
• India’s economy faces headwinds as the Israel–Iran conflict continues to lift global crude oil prices. According to ICRA, even a moderate increase in oil prices could inflate India’s import bill by $13–14 billion, widen the current account deficit, and push wholesale price inflation sharply higher. The threat of a potential closure of the Strait of Hormuz — which handles nearly 50% of India’s crude imports — adds another layer of risk, raising fears of escalating energy costs and further downward pressure on the Rupee through FY2026.
• India’s trade negotiations with the US have run into fresh challenges ahead of the looming July 9 deadline for a 26% tariff. According to reports, talks have stalled because India finds the proposed 10% baseline tariff under the Trump administration’s offer inadequate. Without a limited deal in place, domestic industries may face higher levies, potentially adding a drag on India’s external trade balance and posing another risk to the Rupee if trade tensions escalate further.
• Federal Reserve Vice-Chair Michelle Bowman, speaking in Prague, signaled that she is open to a rate cut as soon as the July policy meeting, pointing to easing inflation pressures and early signs of a cooling labor market. Her unexpectedly dovish tone reinforced market expectations that the Fed could pivot toward an accommodative stance sooner than previously thought. This shift helped keep US Treasury yields in check and softened the Dollar’s recent momentum, giving the Rupee an additional cushion amid geopolitical jitters.
• The latest batch of US PMI numbers painted a mixed picture. The S&P Global Composite PMI slipped slightly to 52.8 in June from 53 in May, hinting at a mild loss of momentum but still marking nearly two and a half years of uninterrupted growth. The Manufacturing PMI held firm at 52, matching May’s 15-month high and beating expectations, showing factories are keeping up a steady pace. Meanwhile, the Services PMI edged down to 53.1 from 53.7, but remained just above what markets had anticipated, indicating solid demand in the service sector.

Technical analysis: bullish bias intact above 86.50, 87.00 in focus

On the 4-hour timeframe, USD/INR has maintained its bullish breakout from the symmetrical triangle pattern formed over the past several weeks. After piercing through the upper trendline and the broader descending resistance, the pair climbed to test levels near 87.00 before easing slightly. It remains supported above the 21-period Exponential Moving Average (EMA), currently around 86.52, which has acted as a dynamic floor for most of the recent uptrend. The RSI has cooled off to about 53.69, indicating the pair has unwound short-term overbought conditions but still holds a constructive tone overall.

Looking ahead, as long as USD/INR stays above the breakout region near 86.00–86.10 and the short-term EMA, the bias remains tilted in favour of the bulls. A sustained move back above 86.70 could encourage fresh buying, with the key psychological hurdle at 87.00 still the next upside target. On the flip side, a decisive break below the 21-period EMA would weaken the current structure and open the door for a deeper pullback towards 85.70–85.50 near the triangle’s upper boundary. Overall, dip-buying is likely to persist while geopolitical tensions and safe-haven flows continue to support the US Dollar’s strength against the Rupee.

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