USD/INR gains sharply as Trump mulls higher tariff blanket
- The Indian Rupee opens on a weak note against the US Dollar amid dismal market sentiment.
- US President Trump stated a higher tariff blanket of 15%-20% on nations that have not struck a deal.
- The delay in the US-India trade deal has put the Indian Rupee on tenterhooks.
The Indian Rupee (INR) opens lower against the US Dollar (USD) on Friday, sending the USD/INR higher to near 86.00. Investors were bracing for a positive opening by the pair as the market sentiment turns cautious after United States (US) President Donald Trump mulls higher tariff blanket for most of Washington’s trading partners.
US President Trump said in an interview with NBC News on Thursday that he is considering imposing 15%-20% blanket tariffs that have failed to strike a deal during the 90-day pause period, higher than 10% announced on so-called “Liberation Day” on April 2.
“We’re just going to say all of the remaining countries are going to pay, whether it’s 20% or 15%. We’ll work that out now,” Trump said.
President Trump's potential higher blanket tariff has led to a sharp decline in demand for riskier assets, such as the Indian Rupee. However, the US Dollar trades firmly near its two-week high, with the US Dollar Index (DXY) trading around 97.90.
The impact of dismal market sentiment is also visible in Indian equities, which have opened on a weak note. Nifty50 opens 0.3% lower at 25,300. Sensex30 skids below 83,000. The damage in Indian equities is partially done by India’s tech-giant, Tata Consultancy Services (TCS), which is down almost 2% after subdued results of the first quarter of FY 2025-2026.
Another reason behind souring market sentiment is Trump’s warning to send a letter to the European Union (EU), specifying tariff rates. However, EU officials said this week that they are aiming to reach a trade deal with Washington before the deadline of August 1. Meanwhile, Trump has imposed 35% tariffs on China, which will be separate from his sectoral levies, including automobiles, steel, copper, and aluminum.
Daily digest market movers: Indian Rupee drops amid US-India trade deal uncertainty
- The Indian Rupee trades lower amid uncertainty surrounding the trade deal between the US and India. Both nations have yet to confirmed an agreement even as US President Trump said last week that he is expected to close a deal with India in 48 hours.
- However, New Delhi has stated that the Commerce Ministry team will soon head to Washington for another round of negotiations, Times of India (TOI) reported. “We are negotiating a complete deal. Whatever is finalised can be packaged as an interim deal, and talks on the rest will continue,” a senior government official said.
- The reason behind the delay in the US-India trade deal appears to be protectionist policies of New Delhi towards its agriculture and labor-intensive sectors, according to a report from NDTV.
- Meanwhile, growing expectations of a decline in the Oil price in the next few trading sessions due to a bigger-than-projected increase in oil production by the OPEC+ are expected to support the Indian Rupee. Currencies from nations that depend largely on Oil imports, such as the Indian Rupee, perform strongly in a lower Oil price environment.
- In the US, investors will shift focus to the US Consumer Price Index (CPI) data for June, which will be released on Tuesday. The inflation data will demonstrate the impact of sectoral and blanket tariffs imposed by US President Trump. Signs of price pressures accelerating would force traders to pare bets supporting interest rate cuts by the Federal Reserve (Fed) in the September meeting. In the policy meeting later this month, the Fed is certain to leave interest rates steady in the range of 4.25%-4.50%.
- On Wednesday, the Federal Open Market Committee (FOMC) minutes of the June 17-18 policy meeting showed that members expect monetary policy adjustments will be appropriate later this year if tariff-driven inflation proves to be “modest or temporary”.
Technical Analysis: USD/INR climbs to near 86.00
USD/INR jumps to near 86.00 at open on Friday. The pair manages to return above the 20-day Exponential Moving Average (EMA), which trades around 85.90.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, suggesting that the asset lacks momentum on either side.
Looking down, the May 27 low of 85.10 will act as key support for the major. On the upside, the June 24 low at 86.42 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.
Recommended Articles
