USD/INR surges on Fed's hawkish cut, positive US-China trade talks
- The Indian Rupee weakens against the US Dollar, with the USD/INR pair rising to near 88.85.
- The US Dollar recovers early gains on positive Trump-Xi trade talks.
- US President Trump reduced tariffs on China to 47% from 57%.
The Indian Rupee (INR) slides further against the US Dollar (USD) during afternoon trading hours in India on Thursday. The USD/INR pair surges to near 88.85 as the US Dollar recovers from early losses, following the meeting between United States (US) President Donald Trump and Chinese leader Xi Jinping, after which both leaders have signaled numerous positive outcomes.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades flat around 99.15.
US President Trump has told reporters at Air Force One that soybean deals will begin right away, Beijing will continue exporting rare earths to the US, and tariffs on China will be reduced to 47% from 57%.
Meanwhile, China's Commerce Ministry has also confirmed that it will suspend rare earth export control measures for a year. The ministry also stated that both sides reached a consensus on "fentanyl cooperation" and are looking to expand "agricultural trade".
Daily digest market movers: Indian Rupee underperforms its major peers
- The Indian Rupee underperforms its peers at open on Thursday amid uncertainty over overseas investors' stance on the Indian stock market.
- The overall trading action by Foreign Institutional Investors (FIIs) so far in October has appeared to be slightly positive against the relentless selling seen in the July-September period. However, investors still struggle to gauge whether FIIs will return to the Indian equity market.
- So far in October, FIIs have bought shares worth Rs. 7,500.04 crores, driven mainly by a purchase of Rs. 10,339.80 crores on Tuesday. On Wednesday, foreign investors turned bearish again, selling shares worth Rs. 2,540.16 crores.
- FIIs struggle to turn decisively bullish on Indian equity markets due to a delay in the announcement of a trade deal between the US and India. Top negotiators from both nations have expressed confidence that they are close to reaching a consensus; however, investors seek confirmation before clearing a stance.
- This weekend, a Bloomberg report showed that negotiators from both nations have agreed on almost all issues, and a deal could be announced soon.
- In the US, Federal Reserve (Fed) Chair Jerome Powell has ruled out hopes of further monetary policy easing in December, following the 25 basis points (bps) reduction in interest rates that pushed the Fed Funds rate down to 3.75%-4.00%.
- “Today’s cut was risk management, but another cut in December is far from assured,” Fed’s Chair Powell said in the press conference after the interest rate policy announcement. However, Powell assured that risks to inflation remaining persistent have declined significantly since April, but stressed that it would not be appropriate to ignore them. On the current status of the labor market, Powell expressed concerns again, citing that “available evidence suggests layoffs and hiring remain low”.
The table below shows the percentage change of Indian Rupee (INR) against listed major currencies today. Indian Rupee was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.19% | 0.00% | 0.65% | 0.03% | -0.04% | 0.33% | -0.18% | |
| EUR | 0.19% | 0.19% | 0.84% | 0.22% | 0.14% | 0.51% | 0.00% | |
| GBP | -0.01% | -0.19% | 0.63% | 0.02% | -0.05% | 0.33% | -0.19% | |
| JPY | -0.65% | -0.84% | -0.63% | -0.64% | -0.69% | -0.35% | -0.86% | |
| CAD | -0.03% | -0.22% | -0.02% | 0.64% | -0.06% | 0.30% | -0.21% | |
| AUD | 0.04% | -0.14% | 0.05% | 0.69% | 0.06% | 0.36% | -0.14% | |
| INR | -0.33% | -0.51% | -0.33% | 0.35% | -0.30% | -0.36% | -0.53% | |
| CHF | 0.18% | -0.00% | 0.19% | 0.86% | 0.21% | 0.14% | 0.53% |
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).
Technical Analysis: USD/INR aims to revisit all-time high around 89.10
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USD/INR jumps to near 88.85 on Thursday. The pair returns above the 20-day Exponential Moving Average (EMA), which trades around 88.44. This suggests that the near-term trend has turned bullish.
The 14-day Relative Strength Index (RSI) rises towards 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Looking down, the August 21 low of 87.07 will act as key support for the pair. On the upside, the all-time high of 89.12 will be a key barrier.
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.
