Insights 
VT 
The Indian Rupee (INR) managed to halt its three-day slide against the US Dollar (USD) on Friday, showing a slight recovery after reaching a three-month low. This improvement was supported by a weaker US Dollar and declining Crude Oil prices as traders assessed the impact of US President Trump’s decision to delay any military intervention in the Israel–Iran conflict.
The USD/INR pair decreased during American trading hours, trading around 86.60. Despite easing from a multi-month high, the pair is still up over 0.50% for the week, driven by high Crude Oil prices amidst the ongoing conflict.
Domestic Economic Factors
Domestic factors also contributed to the Rupee’s rise, with strength in equity markets and a steady trend in global Crude Oil prices boosting sentiment. India’s GDP growth accelerated to 7.4% in Q4 FY25, inflation remained below 4% for four months, and GST revenues continued to rise, indicating strong demand and stable formal-sector activity.
The core sector’s growth fell to 0.7% in May from 6.9% the previous year, reflecting weak momentum in heavy industries. However, India’s stock indices rebounded, with the BSE Sensex and NSE Nifty50 both rising by 1.29%, aiding market sentiment.
Crude prices dipped over 2% on Friday but maintained a weekly gain near 4%, remaining sensitive to conflict developments. The Reserve Bank of India (RBI) cut the repo rate by 50 basis points to 5.5%, maintaining its accommodative stance.
The Rupee gained further support from reduced inflation forecasts, with CPI projected at 3.7% for FY26. Retail inflation dropped to a 75-month low of 2.82% in May as food inflation fell below 1%, advocating for an accommodative policy stance.
As the Iran–Israel war continued, geopolitical worries persisted with US and Israeli leaders considering military actions while Iranian officials threatened to close the Strait of Hormuz if tensions rose. The US Dollar Index slid below 99.00, impacted by risk reassessment.
Geopolitical and Market Trends
Manufacturing continued showing weakness, as highlighted by the Philadelphia Fed Manufacturing Index which remained at -4.0 in June. Upcoming PMI data from India and the US is now awaited by traders, signalling potential shifts in economic performance.
On technical fronts, USD/INR hinted at a potential pullback after hitting resistance at 87.00, despite bullish signs earlier this week. The Relative Strength Index cooled slightly, indicating persistent buyer control above 85.80-86.00 unless further pressures prevail.
The Composite PMI provides insight into India’s business activity, with levels above 50 indicating expansion and a positive outlook for INR. The next release is scheduled for June 23, 2025.
We saw the Rupee find a foothold following a turbulent stretch, helped along by calmer global markets and a temporary dip in energy prices. The Dollar’s weakness on Friday, spurred by a delay in aggressive military strategies from Washington, lent immediate relief to the pair, which narrowed from earlier highs but still closed the week in positive territory for the greenback. What this means in practice is buyers are still lingering closer to resistance than what fundamental shifts might suggest.
Equity markets at home picked up momentum, which improved overall risk sentiment. Combined with stable oil prices and strong tax collections, we observed growing support for domestic demand. These factors add to the perception that economic activity is ticking along, at least in the formal sector. If we add the sub-4% inflation run and improved GDP figures into that, it paints a steady picture.
However, the reduced core sector growth hasn’t flown under the radar. That drop from nearly 7% to below 1% in heavy industries is not encouraging for those tracking industrial output. While the broader markets shook off the pessimism for now, it’s difficult to overlook the weak momentum in capital-intensive areas. This flags a risk on the industrial production side, which may circle back into sentiment over time.
In parallel, oil markets remain sensitive. A 2% drop on Friday sounds helpful, but there’s little relief when considering the weekly gain remains around 4%. So while energy prices aided the Rupee temporarily, the backdrop remains volatile — any flare-up in Middle East tensions may undo the gains quickly. The current energy path is still dragging on imports, which will need to be watched continuously.
Policy support from the central bank, with the rate trimmed by half a percentage point, reinforces confidence in controlling borrowing costs. This aligns with the 75-month low in retail inflation, largely steered by falling food prices. If that continues, the current accommodative approach is likely to stay in place well into the next quarter — particularly with CPI projected to stay near 3.7%.
One point we’ve been measuring is whether this monetary and inflation setup anchors the currency strongly enough. For now, it does offer medium-term backing. However, it won’t insulate it from sharp geopolitical moves or Fed-related shocks. Notably, the weakness in American manufacturing, reflected in June’s Fed manufacturing index, suggests some resilience in the Rupee-minus-USD story, at least short-term.
Looking at price action — and this part matters for anyone managing trades — the USD/INR pair pulled back just after testing firm resistance at 87.00. The RSI has cooled down somewhat but still implies the buyers haven’t disappeared below the 85.80–86.00 range. Unless there’s renewed momentum pushing it higher, we expect traders to revisit these support levels in the coming days.
Mark your calendars for the June PMIs — India and US both — especially if you’re watching for signs of business activity diverging. With expansion in Indian composite PMIs last reported above 50, we’re keeping an eye out for confirmation. Any surprise, either higher or lower, could swing short-term positioning significantly.
