USD/INR eases above 85.00 as Rupee trims gains amid fading trade tensions

Indian Rupee pares earlier gains as USD/INR rebounds slightly above 85.00.
US Dollar steadies after a sharp early-week decline, DXY Index hovers above 99.00
The final round of US-India trade deal talks is expected soon in New Delhi.

Vishal Chaturvedi FXStreet

The Indian Rupee (INR) trims some of the earlier gains against the US Dollar (USD) on Monday, with the USD/INR pair retreating slightly above 85.00 during the American trading hours. The slight weakness in the Indian Rupee comes on the back of easing global trade tensions, which lent some support to a broadly weak US Dollar.

The Dollar Index (DXY), which measures the value of the USD against a basket of six major currencies, is recovering after hitting a four-week low at the start of the day. At the time of writing, the Index is holding steady, trading above the 99.00 mark as traders repositioned after US President Donald Trump backed away from his threat to impose a 50% tariff on European Union (EU) goods to the US from June 1. Following a phone call with European Commission President Ursula von der Leyen, Trump agreed to push the tariff deadline to July 9, in line with the previously announced 90-day truce. The shift has eased some immediate concerns and lent temporary support to the US Dollar.

On the trade front, the United States is set to send a high-level trade delegation to India in the coming weeks, aiming to seal a long-awaited interim trade agreement. According to sources cited by multiple Indian media outlets, this upcoming round of talks could be the final push to resolve sticking points between the two sides.

India is seeking a full exemption from the additional 26% duties the US imposed earlier this year, particularly to shield its labor-intensive export sectors such as textiles, leather, and jewelry. The country is also pushing to reduce the existing 10% base tariff.

In return, India may consider allowing greater market access for American companies, allowing them to bid for government procurement contracts, estimated to be worth over $50 billion.

Commerce Minister Piyush Goyal has already held two rounds of meetings in Washington with his US counterpart, signaling that both sides are committed to getting a deal across the finish line. A separate visit by India’s chief negotiator last week also set the stage for this critical final round.

Indian Rupee FAQs

What are the key factors driving the Indian Rupee?

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.

How do the decisions of the Reserve Bank of India impact the Indian 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.

What macroeconomic factors influence the value of the Indian Rupee?

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.

How does inflation impact the Indian 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.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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