The Indian Rupee has shown weakness against the US Dollar at the week’s start. The USD/INR pair has risen to an all-time high of 91.55, with foreign institutional investors continuously withdrawing funds, a downturn in domestic equity performance, and no decisive trade agreements between the US and India.
In January, foreign investors sold stakes worth Rs. 26,052.40 crore over ten trading days, and they have been net sellers for four months in 2025. Tensions between the US and India are exacerbated by raised US tariffs on Indian imports, reaching 50% due to oil purchases from Russia.
Impact Of Upcoming Fiscal Budget
The upcoming fiscal budget by Finance Minister Nirmala Sitharaman on February 1 could significantly impact the Indian Rupee. The government is anticipated to target a fiscal deficit of 4.2% of GDP for FY 2027, potentially increasing to 4.4% with prioritised growth, and plans for increased defense spending.
The Indian Rupee’s position flattened against the US Dollar, which underperformed compared to other major валюты due to US-EU trade tensions over Greenland. President Trump’s 10% tariff on EU goods starting February 1 prompted EU threats of countermeasures, hinting at possible economic retaliation.
The Indian Rupee’s weakness against the US Dollar is a key trend to watch, with the USD/INR pair testing its all-time high of 91.55. This is driven by significant foreign fund outflows from Indian stocks, which we have seen accelerate this month. Provisional data from the National Securities Depository Limited (NSDL) up to January 16th shows this outflow has now surpassed Rs. 31,000 crore.
Market Volatility Around The Indian Union Budget
Traders should prepare for higher volatility leading up to the Indian Union Budget on February 1. Expectations of a wider fiscal deficit, potentially rising to 4.4% of GDP to boost growth, could further pressure the Rupee. Historically, we have seen implied volatility for USD/INR options spike by 15-20% in the two weeks leading up to the budget, making long volatility strategies like straddles attractive.
While the US Dollar is strong against the Rupee, it is showing weakness against other major currencies due to the trade dispute with the EU over Greenland. The Euro has actually strengthened against the Dollar, with EUR/USD rising 0.5% over the past week to 1.1250, as markets price in potential EU countermeasures. This indicates the current USD/INR rally is more about specific Rupee weakness than broad Dollar strength.
The technical outlook remains bullish for USD/INR as long as the price stays above the 50-day EMA around 89.91. A decisive break above the 91.55 high would open the door for further upward movement, suggesting that buying on dips remains a viable strategy. Meanwhile, the CME FedWatch tool shows a 94% probability of the Fed holding rates in its upcoming meeting, removing any immediate risk of a hawkish surprise that could dramatically alter the landscape.
