USD/INR opens flat even as Trump announces tariffs on pharmaceutical imports
- The Indian Rupee starts the day on a flat note around 88.90 against the US Dollar on Friday.
- Trump’s announcement of 100% tariffs on pharmaceutical imports could weaken the Indian Rupee.
- Investors await the US PCE inflation data for August.
The Indian Rupee (INR) opens on a flat note around 88.90 against the US Dollar (USD) on Friday. The USD/INR pair is expected to move higher as United States (US) President Donald Trump has announced fresh tariffs on pharmaceuticals, which will come into effect on October 1.
On Thursday, US President Trump stated through a post on Truth.Social that imports of pharmaceuticals into the US will attract 100% additional duty. Trump didn’t clarify whether countries that have secured a trade deal with Washington will be exempted from new sectoral tariffs.
Overall, the announcement is another damage to India’s export sector that is already facing 50% tariffs on imports into the US, one of the highest among Washington’s trading partners. The impact will be significant on Indian pharmaceutical companies, which exported $3.6 billion worth of healthcare products to the US in 2024, according to Hindustan Times.
The US raised tariffs on imports from India to 50% in early August for buying Oil from Russia, which they called the nation is indirectly funding Moscow’s war with Ukraine.
This week, the announcement of an increase in H-1B visa fees by the US to $100,000 also impacted the Indian Rupee badly.
Meanwhile, Indian Commerce and Trade Minister Piyush Goyal returns to India with his team after trade negotiations with Washington. However, Goyal has not unveiled any material development on bilateral trade talks with the US yet.
On the domestic front, investors await the monetary policy announcement by the Reserve Bank of India (RBI) on Wednesday. Investors expect the RBI to hold its Repo Rate steady at 5.5%.
Daily digest market movers: US Dollar gains on upbeat revised US Q2 GDP data
- The Indian Rupee has been trading sideways near its all-time high of around 89.10 against the US Dollar (USD) since Wednesday. Sheer strength in the USD/INR pair is also driven by the upbeat US Dollar, which extended its upside further on Thursday after the release of key US data.
- During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near its fresh four-week high of around 98.40 posted on Thursday.
- The US Dollar gains further after the release of the revised US Q2 Gross Domestic Product (GDP) data, which showed that the economy grew at a faster pace of 3.8% on an annualized basis, compared to the preliminary estimate of 3.3%. Also, Durable Goods Orders data for August surprisingly came in positive at 2.9%, while it was expected to decline for the third month in a row.
- In Friday’s session, investors will pay close attention to the US Personal Consumption Expenditure Price Index (PCE) data for August, which will be published at 12:30 GMT. The impact of the inflation data would be significant on market expectations for the Federal Reserve’s (Fed) monetary policy outlook, as a majority of officials have lately advised caution on further interest rate cuts as risks to inflation have tilted to the upside.
- Economists expect the US core PCE inflation, which is the Fed’s preferred inflation gauge, to have grown at a moderate pace of 0.2% on a monthly basis against the prior reading of 0.3%, with yearly figures rising steadily by 2.9%.
- Meanwhile, US President Trump has criticized the Fed, especially Chair Jerome Powell, again, through a post on Truth.Social, for interest rates remaining too high, and has stated that borrowing rates should be around 2%. “If it weren’t for Jerome ’Too Late’ Powell, we would be at 2% right now, and in the process of balancing our budget. The good news is that we’re powering through his incompetence,” Trump wrote.
Technical Analysis: USD/INR remains firm near all-time high near 89.00
USD/INR turns sideways after posting a fresh all-time high of around 89.10 on Tuesday. The upward-sloping 20-day Exponential Moving Average (EMA) near 88.38 signals more upside in the pair.
The 14-day Relative Strength Index (RSI) stays above 65.00, suggesting a strong bullish momentum.
Looking down, the 20-day EMA will act as key support for the major. On the upside, the round figure of 90.00 would be the key hurdle for the pair.
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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