The Indian Rupee (INR) has weakened for a third successive day against the US Dollar (USD), reaching a three-month low. This decline is attributed to heightened supply concerns caused by the escalating Middle East conflict, keeping Crude Oil prices high and increasing India’s import expenses.

During American trading hours, the USD/INR is around ₹86.79, slightly below its earlier European session peak of ₹86.89. The US Dollar Index remains strong at around 99.00 after the Federal Reserve held interest rates steady. After the Juneteenth holiday, trading volumes are expected to increase on Friday, potentially affecting momentum.

Iran Israel Conflict Impact

In the ongoing Iran–Israel conflict, both countries have engaged in heavy strikes, with additional US military assets deployed in the region as a deterrent. The Indian Rupee’s decline reflects increased risk aversion, with possible implications of US involvement in the conflict. India’s inflation rate decreased to 2.8% in May due to lower food prices, although core inflation is rising, driven by global economic pressures.

India’s Petroleum and Natural Gas Minister reassured the market of adequate oil reserves despite supply concerns from the conflict. Brent crude prices surged to nearly $76.78 per barrel, while West Texas Intermediate holds at approximately $75. India’s trade routes face challenges, affecting transactions with Iran and Israel.

Federal Reserve policymakers suggested potential rate cuts later in the year, dependent on economic data. The USD/INR has shown renewed upward momentum with strong breakout patterns. The Rupee is influenced by external factors such as oil prices, US Dollar value, and Reserve Bank of India interventions. Macroeconomic elements like inflation, interest rates, and trade balances also play a role in its valuation.

With the Indian Rupee continuing its depreciation against the US Dollar, this recent move downwards reflects mounting pressure from external shocks, particularly energy-related. The price of Brent rising near $76.78 per barrel is not simply a market fluctuation—it directly feeds into India’s import invoice, which becomes heavier whenever oil gets dearer. Given that India is a net importer of energy, any protracted rally in crude prices tends to exacerbate currency weakness, as we’ve seen over the past few sessions. West Texas Intermediate holding its levels compounds the current burden on the currency.

Meanwhile, positioning in the USD/INR pair is tightening as volumes gradually return post-holiday. The quiet that typically follows a US market closure tends to obscure underlying moves, but with liquidity picking up, volatility may no longer stay contained. Friday’s re-entry of American traders means there could be short-term market recalibrations, particularly if risk aversion intensifies from escalating geopolitical conflict.

US Forex Market Response

Fed speakers have not shifted tone much, but markets interpret their data-dependent stance as leaving the door ajar for rate adjustments. While official rates remain unchanged, the hawkish undertone across previous commentary appears to be softening modestly. Should inflation data across the Atlantic come in weaker than expected, we may see them move. US Dollar strength, however, remains persistent, and it’s this resilience that’s underpinning the pressure on weaker counterparties, especially against currencies like the Rupee.

Domestically, even with a drop in headline inflation to 2.8%, the uptick in core measures—notably those that exclude volatile food and fuel—sends a different signal. So while food-driven relief may appear on the surface, price pressures from other sectors remain sticky. This divergence signals that the central bank may stay wary, even as energy costs threaten to reverse the softening trend.

We’ve taken note of comments from the Petroleum Minister, who reiterated that India holds adequate reserves. Still, verbal reassurance only goes so far when paired with real logistical bottlenecks and shipping disruptions. Any snag along supply routes, including those linking to Iran and Israel, could lead to further delays or cost increases. Trade links with these nations, though not dominant, still play a critical role in several key goods, so instability in channels adds another layer to broad INR vulnerability.

In terms of positioning, technical signals started pointing towards a retest of earlier resistance levels. The breakout patterns underway suggest bulls have fresh conviction. Past attempts to rally USD/INR beyond key thresholds were tentative, but current dynamics—particularly driven by firm dollar demand—appear more grounded. These moves have not escaped the notice of currency desks, many of whom are watching for sustained closes above recent local highs. A few more sessions of directional bias could confirm a more entrenched move.

We should also remember that interventions from the monetary authority, though not explicitly confirmed, could be anticipated if the pace of depreciation accelerates or becomes disorderly. However, actions taken tend to be aimed more at curbing volatility rather than defending a fixed level. It’s also likely that policymakers will monitor macroeconomic stress signals first—those relating to trade balances or external borrowing—before stepping in.

The broader picture is complex, as always. Risk sentiment worldwide remains in flux, but for now, we’re observing an environment where rising costs due to external commodity shocks are pressing down on emerging currency valuations. With the Federal Reserve keeping the market guessing and unresolved geopolitical tension keeping traders alert after every new headline, longer-term directional confidence will only emerge once these cross-currents settle, if at all.

For those tracking movements and constructing strategies, patterns in energy-linked exposures and rate expectations remain pivotal. It’s not an environment that rewards complacency. There could be pockets of sharp reversals, particularly if new data from the US or crude inventories catch markets by surprise. We’re watching not only the macro releases closely but also indications of supply flows through the Gulf. These determine whether pressures are likely to dissipate or re-ignite in the coming weeks.

Create your live VT Markets account and start trading now.