Indian Rupee rebounds amid a pause in rally in US bond yields

The Indian Rupee rebounds against the US Dollar as US bond yields cool down.
US President Trump pushes back fears of military aggression against Iran before Midterm elections.
Investors shift their focus to the India’s CPI data.

Sagar Dua FXStreet

The Indian Rupee (INR) trades slightly higher against the US Dollar (USD) on Friday. The USD/INR pair corrects to near 96.55, but is still close to its all-time high of 97.00. The Indian currency gets a much-needed reprieve from a corrective move in United States (US) Treasury Yields.

At press time, 10-year US Treasury Yields are down 0.23% to near 5.22%. Yields on US-backed securities started correcting after failing to extend the rally above the two-decade-high at 5.36%.

Theoretically, the scenario of a pause in US bond yields improves the appeal of riskier assets, such as the Indian Rupee, unless the broader trend resumes.

Meanwhile, the Reserve Bank of India (RBI) is also expected to have intervened at the open. According to a Reuters report, the Indian central bank likely sold US Dollars to support rupee near record-low levels.

What led to sharp correction in US Treasury Yields?

US bond Yields came under pressure on Thursday after oil prices cut some advance, following remarks from President Donald Trump pointing to optimism on US-Iran diplomacy.

We [US] will not be attacking Iran at any time prior to the Midterm Elections to be held in the United States on November 3^rd,” US President Trump said through a post on Truth Social, adding, “We are having productive discussions with the Islamic Republic of Iran.”

Is rally in US bond yields over?

A pause in the ongoing rally in US bond Yields has brought some relief for risk-sensitive assets. However, the broader trend in the US Treasury Yields will likely last long, as significant investment from hyperscalers remain intact and the Federal Reserve is highly anticipated to deliver more interest rate hikes in the near term.

Analysts at Danske Bank said in a note this week that US bond yields are in a longer-term uptrend not only because of the supply of Treasuries, but also from higher bond issuance by hyperscalers. Against this setting, the bank cautions that “we do see the risk of 10Y and 30Y Treasuries hitting 6% as investors demand a higher premium for the long end,” underscoring concerns that term premia may need to rise further to clear upcoming issuance.

On the domestic front, the RBI hiked its key policy rate by 25 basis points (bps) this week, and changed its monetary policy stance from “neutral” to “calibrated tightening”, signaling that rate cuts are off the table in the near term. Meanwhile, investors await India’s Consumer Price Index (CPI) data for September, which will be released on Monday.

What to expect from India’s CPI report?

According to Societe Generale, India’s inflation backdrop is set to deteriorate markedly in September 2026, with the bank projecting that “headline CPI inflation [will] rise sharply to 5.6% yoy, from 4.8% in August, led by food inflation which likely rose to around 7.5% yoy.” Societe Generale adds that the move is not confined to volatile components, noting that “we also expect core CPI inflation to approach 4.5% yoy, indicating that underlying price pressures are strengthening despite relatively subdued mass-market demand.”

Technical Analysis: USD/INR struggles to revisit all-time high near 97.00

In the daily chart, USD/INR trades at 96.55, maintaining a bullish near-term bias as spot holds above the 20-day exponential moving average (EMA) at 96.12.

The positioning over this short-term trend gauge suggests underlying demand remains in place, while the Relative Strength Index (14) at 65.14 stays in positive territory but shy of overbought, hinting that bullish momentum is constructive yet not extreme.

On the downside, immediate support is seen at the 20-day EMA at 96.12, where a daily close below would signal fading upside pressure and expose a deeper corrective phase. On the upside, the all-time high near 97.00 would remain the major barrier.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Economic Indicator

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The RBI Interest Rate Decision is announced by the Reserve Bank of India. If the bank is hawkish about the inflationary outlook of the economy and rises the interest rates, it is seen as positive, or bullish, for the INR, while a dovish outlook for the economy (or a rate cut) is seen as negative, or bearish, for the currency.

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