The Indian Rupee (INR) has weakened slightly against the US Dollar (USD) at the end of 2025, with the USD/INR pair rising to near 90.35. This follows Indian importers’ demand for USD, exacerbated by the Reserve Bank of India’s (RBI) market interventions amidst record INR lows of 91.55. Indian currency has declined by over 6% this year, making it the poorest performing among Asian currencies, even as the US Dollar Index (DXY) fell by nearly 9.5%.
Foreign Institutional Investors (FIIs) have sold off Rs. 24,148.33 crore worth of shares, influenced by high valuations of Indian stocks compared to Chinese and Taiwanese markets. The ongoing expectation of a Federal Reserve (Fed) 50 basis point interest rate reduction in 2026 pressures the DXY, keeping it close to a 12-week low of 97.75. The expected interest rate cut is based on factors such as a slack in the job market and diminished inflationary pressures, with the CPI registering an annual decrease to 2.7% in November.
Technical Analysis
Technical analysis suggests that USD/INR maintains a short-term bullish outlook, trading at 90.3515 above the 20-day Exponential Moving Average (EMA) of 90.1934. Investors are monitoring for sustained price traction above the 20-day EMA, which could indicate a further climb towards the high of 91.50, or risk a decline below at 89.50.
We are seeing strong demand for US Dollars from Indian importers, which is pushing the USD/INR pair back up towards 90.35. This buying activity is a direct response to the lower prices created by the Reserve Bank of India’s heavy intervention earlier this month. We should watch these importer flows closely, as they are currently the main force driving the pair higher.
Foreign investors have been a key driver of the rupee’s weakness throughout 2025. The selling pressure has continued right to the end of the year, with recent NSDL data showing net outflows from equities have now crossed ₹1.5 lakh crore for 2025. This is a significant reversal from the net buying we saw in 2023 and 2024, signaling a major shift in sentiment.
While the rupee is weak, we cannot ignore the softness in the US Dollar itself, which is trading near 12-week lows. Expectations for Federal Reserve rate cuts in 2026 are firming up, especially after the latest jobs report showed Non-Farm Payrolls growth slowing to just 95,000 in November. This dovish sentiment could limit how high the USD/INR pair can ultimately go.
Market Volatility
This conflict between local rupee weakness and global dollar softness suggests a period of high volatility ahead. We have seen one-month implied volatility for USD/INR spike to over 6.5% this month, a level not seen since the global banking jitters back in early 2023. Traders could consider strategies like long straddles or strangles to profit from a large price move in either direction.
From a technical standpoint, the pair holding above its 20-day moving average around 90.20 is our immediate bullish signal. A failure to hold this level could trigger a quick move back towards the December lows near 89.50, shaking out recent long positions. We should use these levels to set our entry and exit points for short-term trades in the first few weeks of 2026.
