The Indian Rupee has been struggling to maintain its upward move against the US Dollar. Following a recent low near 89.25, Indian importers have been buying US Dollars at favourable prices.
The previous week saw the Rupee rebound strongly due to intervention by the Reserve Bank of India to stabilise the currency. Foreign Institutional Investors increased their holding by Rs. 3,598.38 crore last week, though they sold Rs. 457.34 crore on the following Monday.
Trade Agreement Challenges
Demand for US Dollars remains robust among Indian importers due to an incomplete trade agreement between the US and India. Talks have progressed but no deal has been finalised, despite several discussions over six months.
The Reserve Bank of India reported strong economic growth in November, with high demand from rural and urban regions. Coordinated financial policies have contributed to economic resilience over the year.
As for the US Dollar, it regained ground against the Rupee despite a potential GDP slowdown. The BEA is expected to announce a 3.2% growth rate, down from 3.8%. There is only a 20% chance of the Federal Reserve cutting interest rates in January.
The USD/INR pair remains supported above the 20-day Exponential Moving Average of 90.1809, with a neutral 14-day Relative Strength Index of 54. Maintaining above this level would support a bullish outlook, while falling below could trigger further declines.
US Q3 GDP Data Focus
The immediate focus for us is the US Q3 GDP data being released today, December 23, 2025. While Indian importers are clearly buying dollars on any weakness, a lower-than-expected US growth figure could quickly reverse the USD/INR’s recent climb from the 89.25 level. This creates a tense, volatile setup for the pair as we head into the thinly traded holiday period.
We must remember the Reserve Bank of India’s strong intervention just last week when the pair neared 91.55. India’s foreign exchange reserves, which we saw stand at a robust $640 billion as of early December 2025, give the central bank significant firepower to curb excessive Rupee weakness. Any sharp, speculative move higher in the USD/INR will likely be met with renewed selling pressure from the RBI.
The underlying demand for US Dollars from importers remains a key factor that will limit any major Rupee appreciation. This demand is fueled by the lack of a US-India trade deal and a widening trade deficit, which latest figures from November 2025 showed had expanded to over $30 billion. Until we see a change in these fundamental drivers, this consistent dollar demand will provide a floor for the currency pair.
On the US side, the Federal Reserve’s firm stance against near-term rate cuts provides a supportive backdrop for the Dollar. This policy is reminiscent of the 2023-2024 period, when the Fed held rates high to ensure inflation was fully under control before considering any easing. With the market pricing in only a 20% chance of a cut in January, betting against the dollar remains a risky move.
Given these conflicting signals, we see increased value in using options over outright directional futures in the coming weeks. Implied volatility for USD/INR is likely to rise around today’s GDP release and then drift lower into the new year. Traders could consider strategies like straddles to profit from a significant price move in either direction, without having to perfectly predict the outcome of today’s economic data.
