Insights 
VT 
The Indian Rupee showed initial strength against the US Dollar but reversed those gains as late trading hours approached, driven by the US Dollar rising ahead of talks between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng. The US Dollar Index is trading near 99.00, with these developments occurring alongside the ASEAN summit in Malaysia.
The Chinese Vice Premier’s visit for the ASEAN summit involves discussing US-China trade tensions, especially regarding export controls on rare earth minerals. Market focus is on upcoming US Consumer Price Index (CPI) and preliminary S&P Global PMI data releases, with delayed CPI data anticipated to show 3.1% year-on-year headline inflation, up from 2.9%, and core figures to rise similarly.
US Inflation and Market Expectations
US inflation data is expected to impact Federal Reserve rate expectations. Separate forecasts for the Service PMI and Manufacturing PMI indicate moderate growth at 53.5 and 52.0, respectively. The USD’s performance shows the Australian Dollar as the weakest opponent. Domestically, the Indian Rupee responded to moderate PMI growth, with the Composite PMI at 59.9, down from 61.0 in September.
India’s optimism about its trade relationship with the US and reported plans for a significant tariff reduction provide positive undertones. However, renewed concerns about foreign fund outflows emerged, with FIIs selling Rs. 1,165.94 crores in shares. Although previously consistent buyers, FIIs’ recent selling exceeded recent purchasing activities.
The USD/INR pair descended to 87.85 during early trading on Friday, maintaining a bearish trajectory while remaining under the 50-day EMA. The 14-day Relative Strength Index of the pair remains below 40.00, indicating strong bearish momentum, with 87.07 acting as key support and the 20-day EMA as a barrier for potential gains.
The Consumer Price Index (CPI), measuring inflation, remains pivotal, with the US Federal Reserve’s mandate centred on price stability and employment. Despite previous pandemic-induced challenges, inflationary pressures persist, driven by supply-chain disruptions. The Federal Reserve’s persistent measures to manage inflation are under scrutiny as CPI levels are high.
Note: This content is strictly informational and should not be interpreted as investment advice.
Trade Relations and Economic Indicators
Given the conflicting signals, we see the USD/INR pair caught between major forces. A strong US Dollar, with the DXY index pushing 99.00, and ongoing US-China trade tensions are putting upward pressure on the pair. However, optimism around a new US-India trade deal, potentially cutting tariffs from 50% to around 15%, is providing underlying support for the Rupee.
The most critical event on the horizon is the delayed release of the US Consumer Price Index (CPI) data for September. While economists predict a rise to 3.1%, we know the Federal Reserve is also worried about the labor market, especially after the unemployment rate ticked up to 4.2% recently from the sub-4% levels of 2023 and 2024. Therefore, even a hot inflation number might not trigger a hawkish Fed response, creating uncertainty for the dollar’s direction.
On the domestic front, the Indian economy is showing signs of cooling, as the preliminary October Composite PMI slowed to 59.9. This weakness is compounded by renewed foreign fund outflows, with data from the National Securities Depository Limited (NSDL) showing FIIs have pulled a net $2.1 billion from Indian stocks so far in October 2025. This selling pressure makes it difficult for the Rupee to sustain its gains.
The high-stakes trade talks in Malaysia regarding China’s export controls on rare earth minerals will keep markets on edge. We should remember that China accounts for over 70% of global rare earth mining and nearly 90% of processing, giving it significant leverage in these negotiations. Any negative outcome could strengthen the US Dollar further as a safe-haven asset.
With so much event risk, particularly the pending US CPI data, we should consider strategies that benefit from a potential spike in volatility. Establishing a long straddle or strangle option on the USD/INR could be a prudent way to position for a significant price move, regardless of the direction. This approach allows us to capitalize on the market’s reaction once the inflation figures are finally released.
