The Indian Rupee strengthens against the US Dollar after the Reserve Bank of India (RBI) intervenes to mitigate its decline. The USD/INR fell near 90.50, with the RBI selling US Dollars in spot and non-deliverable forward markets to control the pair after it reached a peak of 91.55.
Foreign Institutional Investors have been net sellers in the Indian market this month but surprisingly became net buyers, purchasing Rs. 1,171.71 crore worth of shares on Wednesday. This shift in FII activity could temporarily improve market sentiment despite the lack of a US-India trade deal announcement.
Usd Remains Stable
The US Dollar remains stable as markets await the US Consumer Price Index (CPI) data. Inflation is projected to rise to 3.1% year-on-year in November, influencing interest rate expectations. US Dollar Index gains slightly, trading near 98.45, after rebounding from a 10-week low.
There is speculation about the Federal Reserve’s future interest rate moves. Recent remarks by US President about appointing a Fed chair supportive of lower rates add to the uncertainty. Technically, USD/INR corrects from highs, trading near 90.50, supported by moving average indicators and RSI, suggesting limited downside barring a break below key support levels.
Looking back at the period when USD/INR hit all-time highs near 91.55, we see a market defined by aggressive central bank action and worries over capital flight. Today, on December 18, 2025, the situation is more stable, with the pair trading closer to 88.50. The intense pressure we saw from foreign investors selling off has reversed, creating a different environment for traders.
Indian Market Stability
The Reserve Bank of India’s ability to intervene is now stronger than ever, which should inform our strategy. India’s foreign exchange reserves have swelled to a record $710 billion as of early December 2025, a significant increase from the roughly $640 billion seen two years ago in late 2023. This massive war chest suggests the RBI can comfortably sell dollars to prevent any sharp, speculative rise in USD/INR, effectively capping the upside near the 89.50-90.00 range.
On the US side, the economic picture has shifted from the one described previously. We are no longer facing a hawkish Fed, as US core inflation has cooled to 2.4% year-on-year, much closer to the Fed’s target than the 3% figure that was once a concern. With the Fed funds rate currently at 4.50%, the market is now pricing in further gradual cuts in 2026, which puts a natural ceiling on the US Dollar’s strength.
This contrasts sharply with the past when foreign institutional investors (FIIs) were consistent sellers in the Indian market. FIIs have been net buyers in Indian equities for the last two quarters of 2025, with inflows exceeding $20 billion this year, driven by India’s robust GDP growth, which was last reported at 7.5% for the third quarter. This consistent buying provides fundamental support for the Rupee that was absent during previous periods of stress.
Given this backdrop of a powerful RBI, a less aggressive Federal Reserve, and strong foreign investment, implied volatility in USD/INR options is likely to remain subdued in the coming weeks. Derivative traders should consider strategies that profit from low volatility, such as selling straddles or strangles, expecting the pair to remain range-bound. Buying far out-of-the-money call options seems particularly risky due to the high probability of RBI intervention.
The key technical level to watch is the 200-day moving average, currently near 88.10, which should act as strong support. While the overall outlook is stable, we must remain watchful for any surprises from the upcoming US jobs data in early January. Any unexpected strength in the US economy could temporarily alter the Fed’s path and inject short-term volatility.
