The Indian Rupee has weakened against the US Dollar, reaching an all-time high of 91.10 amid consistent foreign institutional investor outflow. India’s retail Consumer Price Index rose to 0.7% in November, remaining below the Reserve Bank of India’s 2%-6% tolerance band, and the Wholesale Price Index deflated by 0.32%.
Despite the Reserve Bank of India’s recent Repo Rate cut by 25 basis points to 5.25%, the lack of a trade deal with the US continues to pressure the Rupee. Foreign Institutional Investors have been net sellers in December, shedding Rs. 19,605.51 crore, while global markets await US Nonfarm Payrolls data for November.
Potential Fed Interest Rate Cuts
The Fed may cut interest rates twice by 2026, with additional cuts suggested from current levels of 3.50%-3.75%. President Trump has been critical of Fed Chair Jerome Powell, and there is speculation of replacing him with a new candidate whose decisions align with Trump’s economic agenda.
The US Dollar Index recently hit an eight-week low, reflecting caution in the market. As USD/INR trades above 91.00, technical indicators such as the 14-day Relative Strength Index suggest the pair is overbought, indicating potential short-term corrections. Meanwhile, trade volume remains affected by global economic developments.
We are seeing the USD/INR pair push to new all-time highs around 91.10, driven mainly by foreign institutions consistently selling Indian stocks. NSDL data confirms this pressure, showing that Foreign Institutional Investors (FIIs) have sold over ₹22,500 crore in the Indian equity market in the first two weeks of December 2025 alone. This persistent outflow is the primary force weakening the Rupee.
On the domestic front, with India’s retail inflation for November coming in at 5.1%, it remains comfortably within the Reserve Bank of India’s target range. This gives the central bank no urgent reason to raise interest rates to defend the currency, suggesting monetary policy will not provide the Rupee any immediate support. The RBI’s last policy meeting kept the repo rate on hold at 5.25%, reinforcing this neutral stance.
US Dollar Weakness
However, the US Dollar itself is showing signs of weakness, with the US Dollar Index (DXY) struggling near an eight-week low of 98.13. Markets are increasingly pricing in future rate cuts by the Federal Reserve, with the CME FedWatch Tool now indicating a nearly 70% probability of at least one rate cut by mid-2026. This broader dollar weakness could act as a headwind, potentially slowing the Rupee’s decline.
The immediate focus for the coming days will be the US Nonfarm Payrolls (NFP) report for November. A weaker-than-expected jobs number would intensify expectations for Fed rate cuts, which could weaken the dollar and provide some relief for the Rupee. Conversely, a strong report could delay those rate cut expectations and add more fuel to the USD/INR rally.
From a trading perspective, the clear upward trend favors staying long on USD/INR, with a potential target of 92.00. However, with the 14-day RSI now in overbought territory above 70, it signals the rally might be overextended. Using derivatives like buying call options or implementing bull call spreads could allow traders to capture further upside while managing the risk of a sudden pullback.
Alternatively, a more cautious approach would be to wait for a temporary dip before entering new long positions. The round figure of 90.00 should serve as a significant psychological and technical support level. A drop to this area could present a more attractive entry point if the fundamental story of FII outflows remains unchanged.
We can look back at the period in 2022, when aggressive global rate hikes triggered similar heavy FII outflows and led to a sustained depreciation of the Rupee. That historical precedent suggests that as long as foreign capital continues to exit India, the path of least resistance for USD/INR remains upward. The key will be to watch if the pace of these outflows begins to slow.
