The Indian Rupee is performing better against the US Dollar as the USD/INR pair falls to around 87.65. This drop is linked to bets indicating possible interest rate cuts by the Federal Reserve after the latest US CPI data.
The US Dollar Index is down by 0.4%, reaching near 97.70, the lowest in two weeks. The probability of the Fed cutting rates in September has risen to 94% from 86%, as per the CME FedWatch tool.
US CPI Report
The US CPI report shows headline inflation at 2.7% year-over-year, slightly below expectations. Core CPI, excluding food and energy, grew by 3.1%, above the forecast of 3%.
USD is weakest against the Swiss Franc today, with other major currencies showing variable changes. Meanwhile, India’s CPI fell to 1.55%, the lowest since June 2017.
India’s economic outlook is uncertain with risks of inflation undershooting RBI forecasts. US tariffs on Indian exports and raised tariffs on imports from New Delhi might impact GDP growth.
In the technical analysis, the USD/INR pair remains near 87.65, with a bullish trend supported by a higher 20-day EMA. Resistance is expected around the August 5 high of 88.25.
Market Concerns and Strategies
We see the market pricing in a near-certain Fed rate cut for September, which is the main reason the US Dollar is weakening. This has pushed the USD/INR pair down to the 87.65 level. This makes it tempting for us to bet on further dollar weakness against the rupee.
However, we must also consider India’s own inflation, which has dropped to an extremely low 1.55%. This gives the Reserve Bank of India (RBI) plenty of reason to cut its own interest rates to stimulate growth. An RBI rate cut would likely weaken the Rupee, which would push the USD/INR pair higher and counteract the effect of a weaker dollar.
Recent data from the start of August 2025 shows that foreign investors have already begun pulling money from Indian government bonds, anticipating a potential RBI rate cut. This outflow of capital puts downward pressure on the Rupee. We see this as a sign that the market is divided on the future direction of the currency pair.
This situation reminds us of the period in 2019, when both the Fed and the RBI were cutting rates. During that time, the USD/INR pair was choppy but ultimately trended higher as concerns about the global economy made traders prefer the safety of the US Dollar. A weaker dollar does not always guarantee a stronger rupee, especially if India’s own economic outlook is uncertain.
The technical chart shows that while the pair has dipped recently, it is still in a longer-term uptrend. We are looking at the recent high of 88.25 as a key resistance level. Given the conflicting pressures from both central banks, we believe a volatility strategy, such as buying both call and put options, could be prudent to profit from a significant move in either direction.
In the coming weeks, we will be watching for any commentary from RBI officials for hints about their next move. The upcoming US jobs report will also be crucial in confirming whether the Fed will proceed with its rate cut. Any surprises from this data could cause a sharp reaction in the currency markets.
