Insights 
VT 
The Indian Rupee weakens to nearly 88.20 against the US Dollar, despite US Dollar’s stability. This occurs amid optimistic talks of a US-India trade deal reaching completion. Reports suggest both nations resolve most issues, with discussions nearing legal formalities. However, India’s Commerce Minister asserts deals will not be rushed.
US trade relations with India have been strained since import tariffs rose to 50%, partly due to India’s oil imports from Russia. Foreign investment in India’s stock market shows signs of slowing outflow, potentially supporting the Rupee. Traders eye Foreign Institutional Investors’ sales, at Rs. 244.02 crores this month, compared to Rs. 43,290.32 crores average in the last three months.
Us Inflation Growth Cools
US inflation growth cools, leading to speculation about potential Federal Reserve interest rate cuts. US CPI data reveals headline and core inflation on a monthly basis at 0.3% and 0.2%. The US Dollar Index remains near 99.00, slightly weakened by easing US-China trade tensions. US Treasury expresses optimism in reducing tariff threats with China, as they engage in fruitful diplomatic discussions.
The USD/INR pair begins the week at 88.10 with a downward trend, sitting below the 20-day EMA. Support and resistance levels are noted at 87.07 and 88.48, respectively. Soft inflation data allows the Fed to focus on job growth, with expectations of an interest rate cut by 25 basis points.
The Indian Rupee’s weakness near 88.20, despite positive US-India trade talks, presents a puzzle. This suggests other forces are at play, possibly intervention from the Reserve Bank of India to keep exports competitive. We should consider that the market may have already priced in the optimism of a trade deal.
Looking back, we saw the RBI actively buy dollars throughout 2024 to prevent the Rupee from strengthening past the 85.00 mark, indicating a preference for a weaker currency. Recent data showing India’s trade deficit widened to over $28 billion in September 2025, largely due to high oil prices, supports this view. A weaker Rupee helps manage this deficit, so we can expect quiet central bank dollar purchases to continue.
US Federal Reserve Rate Cut Expected
The US Federal Reserve is expected to cut interest rates by 25 basis points this week, which should theoretically weaken the dollar. However, recent statements from Fed officials have been hawkish, hinting this could be the last cut for some time, which could put a floor under the dollar. This “one and done” scenario means any dollar weakness following the cut could be short-lived.
This uncertainty makes options strategies attractive. One-month implied volatility for USD/INR has risen from 5.8% to 6.5% over the past few weeks, showing the market is bracing for a move. Traders who are unsure of direction but expect a breakout could buy straddles or strangles to profit from a significant price swing either way after the Fed meeting.
For those using futures, the key levels to watch are the support at the August low of 87.07 and resistance near the September low of 88.48. A decisive break below 87.00 could signal a new wave of Rupee strength, while a failure to break above 88.50 could keep the pair range-bound. We should be cautious about taking large directional bets until after the Fed announcement this Wednesday.
Despite softening US inflation, the dollar remains firm against other currencies, buoyed by optimism around a US-China trade deal. This global strength provides a persistent headwind for the Rupee. We should therefore consider that even if a US-India deal is announced, the Rupee’s upside may be limited as long as broader dollar demand remains intact.
