USD/INR recovers recent gains ahead of Fed policy decision

• USD/INR rebounds toward its record high of 91.96.
• The Indian Rupee could regain support as sentiment improves on the India–EU trade deal.
• The USD/INR pair is seen trading between 91.20 and 92.10, with the February 1 budget as the next key catalyst.

The USD/INR pair inches higher after registering 0.25% losses in the previous session. The pair rebounds toward its all-time high of 91.96, reached on January 23, as the US Dollar (USD) gains amid caution ahead of the Federal Reserve (Fed) policy decision.

The Indian Rupee (INR) finds support as sentiment improves on the India–EU trade deal, expected to lower tariffs on most Indian exports. India has also decided to cut tariffs on EU car imports to 40% from as high as 110%.

Persistent foreign selling of domestic equities exceeding $3.5 billion so far this month continues to weigh on the INR. Foreign investors recorded a near-record net outflow of almost $19 billion from stocks last year.

Traders see little scope for a sustained recovery in the Indian Rupee, with a gradual depreciation likely to continue. In the near term, the rupee is expected to trade in the 91.20–92.10 range, with India’s federal budget announcement on February 1 as the next key catalyst, Reuters cited Dilip Parmar, FX research analyst at HDFC Securities.

The INR could stay under pressure against the US Dollar (USD) as traders remain cautious ahead of the Federal Reserve’s (Fed) policy decision on Wednesday. While rates are expected to remain unchanged, markets will scrutinize the Fed’s statement and Chair Jerome Powell’s press conference for clues on the timing of future rate cuts.

US Dollar advances as market caution emerges ahead of Fed policy

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining after registering losses on Tuesday and trading near 96.10 at the time of writing. The “Sell America” narrative continues to dominate sentiment, with the DXY sliding to its lowest level since February 2022.
• The Federal Reserve is widely expected to keep rates unchanged at 3.50%–3.75% at the end of its two-day meeting on Wednesday, following three consecutive rate cuts in 2025. Markets will focus on the post-meeting press conference for guidance on the policy outlook in the months ahead.
• Jonas Goltermann, deputy chief markets economist at Capital Economics, said in a note, “While there are several potential culprits for the dollar’s drop, the main driver is the fallout from reports that the US Treasury is considering direct currency intervention."
• US ADP Employment Change four-week average was reported at 7.75K, down from the previous report of 8K.
• Senate Democratic leader Chuck Schumer has vowed to oppose a funding package that includes appropriations for the Department of Homeland Security, leaving Congress facing a January 30 deadline to avert a shutdown.
• US President Donald Trump would soon announce his nominee to replace Fed Chair Jerome Powell, fueling speculation that the next chair could favor faster interest rate cuts.
• Indian Prime Minister Narendra Modi’s government has agreed to immediately cut duties on select vehicles priced above EUR 15,000, with rates set to gradually fall to 10%, easing market access for automakers such as Volkswagen, Mercedes-Benz, and BMW.
• The Indian Rupee may find early support from mildly positive US and Asian market sentiment, along with near-term optimism sparked by remarks from the US administration on possible tariff rollbacks. The US could remove the 25% punitive tariffs imposed on India in mid-2025 for purchasing Russian oil, following comments by US Treasury Secretary Scott Bessent on the sidelines of the World Economic Forum in Davos last week, which fueled speculation about easing trade tensions.
• RBI’s INR 1 lakh crore liquidity infusion via government bond purchases is expected to stabilize funding conditions. With the Union Budget and clarity on US–India trade timelines pending, markets are likely to stay cautious, according to Reuters.

Technical Analysis: USD/INR rebounds toward record high near 92.00

USD/INR is trading near 91.60 at the time of writing. Daily chart analysis points to a sustained bullish bias, with the pair holding within an ascending channel. However, the 14-day Relative Strength Index (RSI) at 71.10 signals overbought conditions, indicating stretched momentum and a higher risk of a near-term pullback or consolidation.

Immediate resistance is seen at the January 23 all-time high of 91.96, followed by the upper boundary of the ascending channel near 92.10. On the downside, the nine-day EMA at 91.29 serves as initial support, while a break below it could expose the lower channel support around 90.20.