The Indian Rupee (INR) demonstrates weakness against the US Dollar (USD) at the start of the week. The USD/INR pair clings to gains near the monthly high at 90.70 posted on Friday. The Indian currency continues to underperform its peers as domestic equities struggle to lure foreign investors amid the absence of a decisive breakthrough in trade discussions between the United States (US) and India.
So far in January, Foreign Institutional Investors (FIIs) have remained net sellers on 10 out of 11 trading days, offloading a stake worth Rs. 26,052.40 crore. FIIs also remained net sellers in four out of 12 months in 2025.
Trade frictions between the US and India stemmed after Washington raised tariffs on imports from New Delhi to 50%, one of the highest among all its trading partners for buying oil from Russia.
The next major trigger for the Indian Rupee will be the fiscal budget announcement by Finance Minister (FM) Nirmala Sitharaman on February 1.
According to a report from Jefferies, the Indian government is expected to target a fiscal deficit of about 4.2% of GDP in the Financial Year (FY) 2027. The capital market firm expects that the fiscal deficit could be increased to 4.4% if the administration prioritizes near-term growth. The firm also expects the Indian government to raise defense spending and the rollout of long-delayed central government pay hikes.
Daily Digest Market Movers: Trump threatens 10% tariffs on several EU members
- The Indian Rupee flattens against the US Dollar in the opening session on Monday, while the latter underperforms against its other major peers. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% lower to near 99.15.
- The US Dollar has come under pressure due to fresh trade tensions between the US and the Eurozone over Washington’s desire to purchase and gain full control of Greenland, citing security issues.
- Over the weekend, US President Donald Trump announced a 10% tariff on goods from European Union (EU) members Denmark, Sweden, France, Germany, the Netherlands, and Finland, along with Britain and Norway, starting from February 1, until Washington is allowed to buy Greenland.
- In response, EU members have condemned the US plans for the complete and total purchase of Greenland, and have threatened “united and coordinated” countermeasures. The team of France’s President Emmanuel Macron said that the president will ask the EU to activate its powerful “anti-coercion instrument” if the US imposes additional tariffs in the standoff over Greenland, France 24 reported.
- On the domestic front, a dovish commentary from Federal Reserve (Fed) Vice Chair for Supervision Michelle Bowman on the monetary policy outlook has also weighed on the US Dollar. Bowman argued in a speech on Friday that the Fed should be prepared to cut interest rates further amid fragile labor market conditions. “Risk to Fed’s mandates is asymmetric, with job risks outweighing inflation concerns,” Bowman said, and added, “Given risks, Fed should not signal a pause in rate-cutting campaign.”
- According to the CME FedWatch tool, the Fed is almost certain to hold interest rates steady in the range of 3.50%-3.75% in the January policy meeting.
- On the economic front, investors will focus on the preliminary India-US private Purchasing Managers’ Index (PMI) data for January, which will be released on Friday.
Technical Analysis: USD/INR trades firmly near monthly high of 91.00
USD/INR trades firmly near the monthly high of 91.15 at the time of writing. The 20-day Exponential Moving Average (EMA) is rising and continues to underpin the advance. Price action holds above this dynamic gauge, keeping pullbacks contained.
The 14-day Relative Strength Index (RSI) is at 64.23 (bullish), demonstrating strong momentum, with no overbought conditions. Initial support sits at the 50-day EMA at 89.9134.
As long as the pair holds above the average, topside extension remains favored, while a close below it would soften the tone and expose a deeper retracement.
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.
Source: https://www.fxstreet.com/news/usd-inr-holds-onto-gains-amid-consistent-fiis-selling-in-indian-equity-market-202601190522
