The Indian Rupee (INR) maintained its low against the US Dollar (USD) in early Thursday trading, hovering slightly below its record high of 92.00 reached on Wednesday. This weakening is contributed by foreign institutional investors (FIIs), who sold INR 34,041.21 crore on 13 of the first 14 trading days in January.
Domestically, attention is on the upcoming HSBC Composite Purchasing Managers’ Index (PMI) data for January, scheduled for release on Friday. This data will provide insights into economic demand ahead of the FY 2026-2027 budget announcement on February 1.
Us Dollar Recovery
A recovery in the US Dollar, fuelled by easing US-EU tensions, supported USD/INR gains. The US Dollar Index (DXY) remains near 98.80 after US President Trump’s announcement to avoid force in Greenland’s purchase, seeking negotiations instead.
The US also imposed 10% tariffs on several EU countries, prompting fear of a trade war, causing a demand fall for riskier assets. The USD/INR exchange rate is around 91.81, with the 20-day EMA suggesting trend strength, even as RSI points to overbought conditions at 73.28.
The focus is also on the US Personal Consumption Expenditure Prices Index (PCE) data, which is a key inflation measure for the Federal Reserve and will affect monetary policy outlooks.
The US dollar is strong against the Indian rupee, and this trend looks set to continue in the near term. We see the USD/INR pair pushing its all-time high near 92.00, driven by a powerful US dollar and ongoing weakness in the rupee. This environment suggests that positioning for further rupee weakness remains the most logical strategy for the coming weeks.
Fii Impact
The constant selling by Foreign Institutional Investors is the main driver behind the rupee’s decline, a pattern we also observed in past years. The outflow of over Rs. 34,000 crore so far this month is substantial, echoing the large net sales we saw from FIIs during January of both 2023 and 2024. This consistent selling pressure, tied to trade uncertainties, is unlikely to stop without a significant positive trigger.
Meanwhile, the US dollar is gaining strength as geopolitical tensions between the US and EU ease. The US Dollar Index holding firm near 98.80 provides a solid base for the USD/INR pair’s upward momentum. This renewed confidence in the dollar is making it a preferred currency for traders globally.
Given that the market is technically overbought, it would be wise to avoid buying aggressively at these record highs. A more tactical approach would be to view any price dip toward the 90.72 support level as a potential entry point for a long position. Derivative traders could consider buying call options or establishing bull call spreads to profit from further upside while limiting downside risk.
We must keep an eye on two crucial upcoming events that could alter this trajectory. Friday’s preliminary PMI data will offer the first real glimpse into India’s economic activity for 2026, which follows strong PMI readings above 56.0 that we saw in late 2025. Furthermore, the Union Budget announcement on February 1st holds the potential to change investor sentiment dramatically.
Selling out-of-the-money put options with strike prices safely below the 90.72 support level could be another strategy to capitalize on the current trend. However, traders should be prepared for a potential reversal if the upcoming Indian economic data is surprisingly strong or if the budget introduces market-friendly policies. While the upcoming US PCE inflation data is noted, its focus on late 2025 figures will likely have a limited impact on current market decisions.
