USD/INR surges as Trump hints higher tariffs on India, Fed policy looms
- The Indian Rupee slumps against the US Dollar as US President Trump signals a higher import duty rate for India.
- Trump signaled the possibility of a 20%-25% import duty on India.
- Investors await Fed’s monetary policy decision and key US data.
The Indian Rupee (INR) extends losing spree against the US Dollar (USD) on Wednesday and slides to near 87.60. The USD/INR pair was anticipated to gain further as the Indian Rupee weakens, following comments from United States (US) President Donald Trump pointing out that exports from India could face tariffs ranging between 20% and 25%.
On Tuesday, US President Trump said, “I think so” while responding to reporters after they asked about the possibility of 20%-25% tariffs on imports from India.
Such a scenario is unfavorable for the Indian Rupee as the tariff rate signaled by President Trump is significantly higher than what he has agreed to in deals with Indonesia, Vietnam, Japan, and the European Union (EU). A higher import duty on goods from India could diminish the competitiveness of Indian exports in the international market.
Meanwhile, President Trump also stated that tariffs charged by New Delhi on imports from Washington have been significantly higher than those charged by other countries, and this should come to an end.
The Indian Rupee has remained an underperformer this week as Foreign Institutional Investors (FIIs) have sold their stakes in Indian equity markets relentlessly. So far, FIIs have sold Rs. 41,227.73 crores worth of shares in Indian bourses. On Tuesday, there was an outflow of Rs. 4,636.60 crores worth of shares by foreign portfolio investors in the cash market.
A significant weakness in the Indian currency against the US Dollar has paved the way for the Reserve Bank of India’s (RBI) intervention into the Forex markets. A report from Reuters showed that the Indian central bank will likely sell US Dollars to limit Rupee depreciation.
Indian Rupee PRICE Today
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.18% | -0.25% | 0.08% | 0.21% | 0.45% | -0.18% | |
| EUR | 0.04% | -0.11% | -0.32% | 0.10% | 0.20% | 0.47% | -0.10% | |
| GBP | 0.18% | 0.11% | -0.18% | 0.26% | 0.34% | 0.63% | 0.02% | |
| JPY | 0.25% | 0.32% | 0.18% | 0.43% | 0.55% | 0.78% | 0.16% | |
| CAD | -0.08% | -0.10% | -0.26% | -0.43% | 0.13% | 0.34% | -0.23% | |
| AUD | -0.21% | -0.20% | -0.34% | -0.55% | -0.13% | 0.26% | -0.30% | |
| INR | -0.45% | -0.47% | -0.63% | -0.78% | -0.34% | -0.26% | -0.61% | |
| CHF | 0.18% | 0.10% | -0.02% | -0.16% | 0.23% | 0.30% | 0.61% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Indian Rupee from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent INR (base)/USD (quote).
Daily digest market movers: Indian Rupee continues to underperform against US Dollar, Fed policy eyed
- An outperformance by the US Dollar, following the announcement of a tariff deal between the US and the European Union (EU), has also been a key factor behind the sheer strength in the USD/INR pair.
- This weekend, officials from both sides of the Atlantic approved a trade agreement, which diminished fears of global trade disruption.
- Meanwhile, investors have shifted their focus to the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT. According to the CME FedWatch tool, the Fed is certain to leave interest rates steady in the range of 4.25%-4.50%. This would be the fifth straight policy meeting when the US central bank will hold borrowing rates at their current levels.
- As the Fed is expected to maintain the status quo, the major trigger for the US Dollar will be the central bank’s guidance on inflation and the interest rate outlook for the remainder of the year.
- Lately, a string of Fed officials warned that the impact of tariffs imposed by US President Trump has started feeding into prices, which diminishes the appeal of monetary policy adjustments in the current scenario. Fears of a resurgence in price pressures escalated after the Consumer Price Index (CPI) report for June showed that prices of goods that are largely imported into the economy have increased.
- In Wednesday’s session, investors will also focus on the preliminary Q2 Gross Domestic Product (GDP) and Personal Consumption Expenditure Price Index (PCE) data, which will be published at 12:30 GMT.
Technical Analysis: USD/INR jumps to near 87.60
The USD/INR pair posts a fresh fresh four-month high near 87.60 on Wednesday. The pair trades firmly as the 20-day Exponential Moving Average (EMA) slopes higher to near 86.45, indicating a strong uptrend.
The 14-day Relative Strength Index (RSI) oscillates inside the 60.00-80.00 range, suggesting a strong bullish momentum
Looking down, the 20-day EMA will act as key support for the major. On the upside, the February 28 high around 87.70 will be a critical hurdle for the pair.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
