USD/INR gains as US-Iran divide over Middle East talks keeps investors on edge
- The Indian Rupee declines at open against the US Dollar amid conflicting remarks from the US and Iran on peace talks.
- US President Trump extends a pause on scheduled military action on Iran’s energy plants.
- The RBI is expected to keep interest rates on hold in the policy meeting in April.
The Indian Rupee (INR) opens lower against the US Dollar (USD) on Friday after a holiday the previous day due to Ram Navami celebrations. The USD/INR pair rises to near 94.60, very close to its all-time high of 94.75, as market sentiment remains cautious amid confusion over peace talks between the United States (US) and Iran to end the war in the Middle East.
US-Iran divide raises concerns about Mideast de-escalation hopes
Significant efforts from US President Donald Trump to end the Middle East war are failing to uplift market sentiment due to conflicting remarks from Iran.
US President Trump has been stating that talks with Iran are going “very well”; however, comments from Tehran’s officials regarding negotiation talks indicate the opposite, keeping investors on their toes. Late Thursday, Trump announced through a post on Truth.Social that he has instructed a further postponement of scheduled military strikes on Iran’s power plants for 10 days, specifically mentioning “as per Iranian request” and expressing confidence that talks with Tehran are going very well.
However, a report from the Wall Street Journal (WSJ) has shown that peace talks mediators have dismissed claims that Iran had requested a 10-day pause on strikes on its energy plants. Mediators added that Iran is yet to deliver a final response on Trump’s 15-point plan, which forces Tehran to open the Strait of Hormuz and give up their missile program plans, but the odds that Iran will agree to those terms are very low.
Higher US Dollar and FIIs outflow keep battering Indian Rupee
Signs of a disconnect between US President Trump and peace talks mediators have raised concerns of de-escalation hopes, keeping demand for safe-haven assets upbeat. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to a three-day high around 100.00.
Meanwhile, a complete end to dovish Federal Reserve (Fed) expectations for the current year is also providing strength to the US Dollar. According to the CME FedWatch tool, the odds of the Fed delivering at least one interest rate hike this year is 45%, a sharp turnaround from two interest rate cuts projected before the war started.
Due to a broader risk-off mood, Foreign Institutional Investors (FII) have been consistently paring their stake from the Indian stock market. So far in March, Foreign Institutional Investors (FIIs) have remained net sellers on all trading days and have offloaded their stake worth Rs. 1,07,009.53 crore.
On the domestic front, a Reuters poll conducted in the March 23–26 period shows that the Reserve Bank of India (RBI) will hold interest rates steady in the monetary policy announcement on April 8, as inflation expectations have de-anchored amid rising energy prices. The poll also showed that the majority of respondents see rates unchanged until at least mid-2027.
Technical Analysis: USD/INR approaches lifetime highs of 94.75
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USD/INR trades higher at around 94.60 in the opening session on Friday. The near-term bias is bullish as price continues to press higher above the rising 20-day Exponential Moving Average (EMA), which tracks well below spot and underpins the advance. The sequence of higher closes from mid-month keeps upside pressure in place, while the RSI at 74.03 holds in overbought territory and signals strong momentum, though it also warns that the rally would face risk of a pause if buying exhausts.
Immediate support is now at the March 24 low of 93.90, followed by the 20-day EMA near 93.02, where trend followers would look to defend the broader upswing. A deeper pullback would expose 92.39 as the next support. On the upside, initial resistance emerges at 94.75, the all-time high, ahead of the psychological 95.00 area. A daily close above 95.00 would confirm continuation of the bullish phase and open the way toward higher uncharted levels, while a break below 93.02 would weaken the current positive structure.
(The technical analysis of this story was written with the help of an AI tool.)
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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