Insights 
VT 
The Indian Rupee strengthens against the US Dollar due to a sharp decline in the US Dollar Index, which hit a three-year low. The decline is driven by concerns over Federal Reserve independence following US President Trump’s criticism, coupled with easing geopolitical tensions and lower Crude Oil prices.
USD/INR shows selling interest, trading near 85.60 and down about 0.45% after breaching below the 21-day Exponential Moving Average. The US Dollar Index remains pressured, marking its fourth consecutive loss and hovering near 97.20.
Rupee Gains Driven By Us Political Developments
The Rupee’s gain is largely due to the weakened US Dollar following Trump’s criticism of Fed Chair Powell and remarks at the NATO Summit about possible replacements. The Rupee also recovers from geopolitical tensions in the Middle East, supported by lower Crude Oil prices.
India’s equity market sees substantial gains, with the Sensex and Nifty both surging over 1.21%. This rally supports positive sentiment around the Rupee despite ongoing challenges like FII outflows and a widening trade deficit.
In the US, Trump’s criticism of the Fed and interest rate levels continues to create market unease. Trump’s claims of a strong economy and desire for lower rates add uncertainty to monetary policy expectations.
India Ratings and Research predicts higher banking credit growth, bolstered by RBI rate cuts. Despite recent neutral policy shifts, further rate cuts might occur if inflation remains favourable.
Technical Indicators Signal Continued Pressure
Mixed US macroeconomic data complicate the Fed’s rate path, as rising Core PCE inflation contrasts with economic contraction. Labor market resilience is evident amidst broader signs of economic difficulty.
A breakdown in the USD/INR pair signals a shift after weeks of cautious gains. A breach below technical levels suggests further declines, with resistance preventing upward moves. Technical indicators like RSI signal declining momentum, keeping the outlook bearish unless key resistance levels are reclaimed.
What we’ve seen recently is a decisive move in the Indian Rupee, gaining strength against a weakening US Dollar, driven not by changes in India itself but rather developments across the Atlantic. The Dollar Index, which tracks the greenback’s value against a basket of major currencies, has lost ground for the fourth day in a row. It currently sits near 97.20, reaching levels not seen in the past three years.
This slide stems from an uncharacteristic political intervention in monetary policy. Trump’s criticism of Powell, implying dissatisfaction with interest rate levels and even hinting at possible replacements, has created a notable stir. Such remarks have raised doubts about the Federal Reserve’s autonomy. For any currency trader, this kind of distrust in the central bank’s independence often sends ripples through the charts. The resulting drop in the Dollar reflects that concern.
Alongside this, tensions in the Middle East that had previously driven risk aversion appear to be subsiding. Lower crude prices further contribute to a better external position for India. Since India is heavily reliant on oil imports, any reprieve in global oil prices tends to help the Rupee by easing current account pressures.
We also saw strong moves in domestic equities. Both the Sensex and the Nifty posted robust gains, each surging over 1.21%. This kind of strength in equities tends to feed into demand for the local currency, particularly when foreign institutional investors are wary but local flows outweigh their impact. Investors may still be withdrawing funds, but domestic participation picked up the slack.
A key point for derivative traders is the price action in the USD/INR pair. There was a clear break below the 21-day EMA, which has historically acted as support in the pair’s slow drift upwards. This breach is not a minor technical quirk—it reflects changing sentiment and lower buying interest around those levels. With the pair now hovering near 85.60, further downside could follow if this momentum persists.
From a technical lens, indicators suggest that selling pressure may not be temporary. The Relative Strength Index, which had stayed close to neutral in previous sessions, now signals loss of upward momentum. Unless the pair can reclaim previous resistance zones with conviction, the bias remains skewed towards depreciation in the Dollar.
In the backdrop, the US economy is giving off mixed signals. Labour market indicators remain firm, yet other macro data, including GDP and manufacturing activity, are not aligning with that strength. Inflation, particularly the Core PCE metric, bumps up a notch, which complicates policymaking. With a strong labour print and sticky inflation, the Federal Reserve is caught between reacting to economic softness and managing price stability. This keeps fixed income traders guessing, which tends to favour emerging market currencies in the short term since uncertainties at the top drive investors to seek returns in less conventional places—India, for instance.
Meanwhile, India Ratings and Research points toward growing optimism in credit expansion, supported by previous policy rate reductions. If inflation stays within acceptable bounds, there might still be room for incremental easing, whether through rate action or liquidity operations. Even with a neutral policy stance now, central banks rarely stay neutral for long unless external conditions demand it.
In forward markets, volatility has ticked slightly lower, but the trajectory suggests short positions on USD/INR may still find favour. We are seeing fewer calls for sharp rebounds in the Dollar, even among traditionally bullish voices. That doesn’t mean it won’t happen, but the probability seems to be drifting lower by the session.
