Insights 
VT 
The US Dollar/Indian Rupee (USD/INR) pair has fallen to its lowest in two weeks amid a broad US Dollar decline and increased Rupee demand. The Indian Rupee benefits from foreign institutional investor inflows, rising equity markets, and reduced crude oil prices.
The Indian Rupee gained strength following a US Dollar drop influenced by political factors and weak US economic results. Fresh critiques of the Federal Reserve by President Trump and disappointing US Q1 GDP data have pressured the US Dollar, with the US Dollar Index near a three-year low.
Interest Rate Cuts Speculation
Traders anticipate potential interest rate cuts due to Trump’s criticisms of Fed Chair Powell. The probability of three rate cuts this year has increased to approximately 60%, up from expectations earlier in the week.
The Rupee advanced by 23 paise against the US Dollar, marking a 1.3% weekly gain, its best in over two years. Indian equity benchmarks recorded gains for the fourth consecutive session, with Nifty50 and the Sensex witnessing substantial rises.
Lower crude oil prices are helping the Rupee by reducing import costs and easing the trade deficit, particularly after a recent ceasefire between Iran and Israel. Crude oil prices have dropped around 12% this week, aiding the Rupee’s ascent.
The recent slide in the USD/INR pair to a two-week low reflects shifting sentiment towards the greenback, largely driven by weaker US data and heightened expectations of monetary easing. On the other hand, the Rupee has received a solid boost, drawing strength from external investments, equity market buoyancy, and softer oil prices—factors that together paint a picture of macroeconomic support favouring the Indian unit.
Political And Economic Influences
At the core of the Dollar’s decline is a mix of political friction and economic softness. Last week’s comments from Trump, targeting the Fed’s policy direction under Powell, were not mere rhetoric; they added another layer of uncertainty over future rate decisions. We’ve seen this kind of political pressure before, but with first-quarter GDP figures missing estimates, the timing of such public statements has only increased market wagers on multiple rate cuts through the year. Pricing on three reductions has jumped to about 60%, a notable expansion from earlier expectations just days prior.
Against this backdrop, the Rupee saw its best weekly performance in over two years. A 1.3% gain for the week may seem modest in isolation, but it reflects renewed positioning in Indian assets. Investor flows, guided by better earnings and improving risk appetite, are showing up across broader gauges like the Sensex and Nifty, both of which are on a consistent four-day rise.
Crude oil, meanwhile, is playing its part. A 12% slide over the past week—helped along by a de-escalation in Middle East tensions, particularly between Iran and Israel—has reduced pressure on India’s trade balance. For a large oil importer like India, this translates into lighter external payments and better fiscal breathing space. When blended with robust portfolio flows, the result is a supportive story for the Rupee.
From our perspective, there is a narrow opening here for directional strategies. That said, the clearest opportunities reside not only in outright positions but also in premium capture for options traders focused on implied volatility, which may still be misaligned with realised price action. Splitting exposure across maturities could provide cushion should either US data or geopolitical flashpoints cause price dislocations.
Participants should pay close attention to both Delhi and Washington. Any unexpected inflation prints or hawkish pushback from Fed members could force a repricing of current dovish assumptions, which in turn would lift the greenback off its lows. Equally, further foreign enthusiasm for Indian equities might introduce additional currency inflows, pushing the USD/INR lower yet. It’s a balance of forces, but one where short-term moves are skewed more by expectations than fundamentals.
