USD/INR gains at open as Trump’s attack on Fed’s autonomy batters US Dollar
- The Indian Rupee rises at open to near 85.85 against the US Dollar as Trump’s plan to fire Fed’s Powell.
- Fed’s Powell stated that tariffs-driven inflation could be persistent.
- The RBI monthly bulletin shows that the Indian economy remained resilient in May.
The Indian Rupee (INR) opens higher at around 85.85 against the US Dollar (USD) on Thursday. The USD/INR pair was anticipated to open on a weak note as the US Dollar (USD) renewed its three-year low after United States (US) President Donald Trump lashed out on Federal Reserve (Fed) Chair Jerome Powell for not supporting interest rate cuts in the upcoming policy meetings, while testifying before the Senate on June 24-25.
US President Trump called Fed’s Powell “terrible” while speaking with reporters and floated the idea that he has three or four potential contenders for his replacement. "I know within three or four people who I’m going to pick, Trump said, Reuters reported. The report from the agency also stated that contenders would include its former Fed Governor Kevin Warsh, National Economic Council head Kevin Hassett, current Fed Governor Christopher Waller, and Treasury Secretary Scott Bessent.
Donald Trump’s attack on the Fed’s independence to fulfill his economic agenda has dampened the US Dollar’s exceptionalism. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near 97.25.
While testifying before the Senate on Wednesday, Jerome Powell stated that the Fed is being “careful about reducing interest rates” as “tariffs-driven inflation could prove to be persistent” for the economy, when asked why he has not brought borrowing rates down despite price pressures easing in the last few months.
Jerome Powell also warned that premature interest rate cuts could be harmful for the economy. “If we make a mistake, people will pay the cost for a long time," Powell said.
Daily digest market movers: Indian Rupee gains as RBI bulletin shows economic resilience
- The Indian Rupee gains against the US Dollar on Thursday as the Reserve Bank of India (RBI) has stated in its monthly bulletin of May that the Indian economy remained resilient despite the headwinds of the new trade policy imposed by the US and geopolitical tensions.
- "In this state of elevated global uncertainty, various high-frequency indicators for May 2025 point towards resilient economic activity in India across the industrial and services sectors," the RBI said in its ’State of the Economy’ article, Reuters reported.
- The Indian central bank has stated that current financial conditions are favorable to transmit front-loaded interest rate cuts into the economy. In the monetary policy announcement earlier this month, the RBI unexpectedly slashed the Repo Rate by 50 basis points (bps) to 5.5% and announced a decline in the cash reserves by banks to stimulate economic growth.
- This week, the Indian Rupee has remained a clear outperformer as the Oil price tumbles sharply after the announcement of a ceasefire between Israel and Iran on Monday. The Israel-Iran truce ruled out fears of the closure of the Strait of Hormuz, a passage for almost a quarter of the global Oil supply.
- Lower Oil price bodes well for the currencies of countries like India, which relies heavily on oil imports to fulfill its energy needs.
- Meanwhile, the Indian equity market continues to perform strongly, buoyed by risk-on sentiment after the Israel-Iran truce. Nifty50 gains over 100 points to near 25,350 in the opening session, the highest level in the year to date. However, Foreign Institutional Investors (FIIs) have been selling Indian equities over the last three trading days. The cumulative sell-off by FIIs in the Monday-Wednesday period is Rs. 9,568.13 crores.
- Going forward, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for May, which will be published on Friday. The Fed’s preferred inflation gauge is expected to show that inflationary pressures grew at a faster pace on year. The impact of the inflation data is expected to be contained on the US Dollar and market expectations for the Fed’s monetary policy outlook, as investors are more concerned about elevated inflation expectations amid uncertainty over the tariff policy.
Technical Analysis: USD/INR seems vulnerable around 20-day EMA
The USD/INR pair struggles to hold the 20-day Exponential Moving Average (EMA) around 85.90, suggesting that the near-term trend has become uncertain.
The 14-day Relative Strength Index (RSI) slides vertically to near 50.00 after remaining above 60.00 in the past few trading days, indicating a strong bearish reversal.
On the downside, the June 12 high at 85.70 will act as key support for the major. On the upside, the June 24 high of 86.60 will be a critical 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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