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USD/INR remains stronger as US Dollar gains ahead of Fed decision

  • USD/INR rebounds toward its record high of 91.96.
  • The Indian Rupee could regain support as sentiment improves on the India–EU trade deal.
  • The USD/INR pair is seen trading between 91.20 and 92.10, with the February 1 budget as the next key catalyst.

The USD/INR pair inches higher after registering 0.25% losses in the previous session. The pair rebounds toward its all-time high of 91.96, reached on January 23, as the US Dollar (USD) gains amid caution ahead of the Federal Reserve (Fed) policy decision.

The Indian Rupee (INR) faces challenges amid persistent foreign selling of domestic equities exceeding $3.6 billion so far this month. Foreign investors recorded a near-record net outflow of almost $19 billion from stocks last year.

The Indian Rupee (INR) finds support as sentiment improves on the India–EU trade deal, expected to lower tariffs on most Indian exports. India has also decided to cut tariffs on EU car imports to 40% from as high as 110%.

Traders see little scope for a sustained recovery in the Indian Rupee, with a gradual depreciation likely to continue. In the near term, the rupee is expected to trade in the 91.20–92.10 range, with India’s federal budget announcement on February 1 as the next key catalyst, Reuters cited Dilip Parmar, FX research analyst at HDFC Securities.

The INR could stay under pressure against the US Dollar (USD) as traders remain cautious ahead of the Federal Reserve’s (Fed) policy decision on Wednesday. While rates are expected to remain unchanged, markets will scrutinize the Fed’s statement and Chair Jerome Powell’s press conference for clues on the timing of future rate cuts.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Indian Rupee.

USDEURGBPJPYCADAUDNZDINR
USD0.26%0.22%0.05%-0.09%-0.02%0.11%0.27%
EUR-0.26%-0.05%-0.24%-0.36%-0.27%-0.15%0.03%
GBP-0.22%0.05%-0.17%-0.31%-0.23%-0.11%0.06%
JPY-0.05%0.24%0.17%-0.13%-0.05%0.06%0.14%
CAD0.09%0.36%0.31%0.13%0.08%0.20%0.40%
AUD0.02%0.27%0.23%0.05%-0.08%0.12%0.32%
NZD-0.11%0.15%0.11%-0.06%-0.20%-0.12%0.16%
INR-0.27%-0.03%-0.06%-0.14%-0.40%-0.32%-0.16%

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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

US Dollar advances as market caution emerges ahead of Fed policy

  • The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining after registering losses on Tuesday and trading near 96.10 at the time of writing. The “Sell America” narrative continues to dominate sentiment, with the DXY sliding to its lowest level since February 2022.
  • The Federal Reserve is widely expected to keep rates unchanged at 3.50%–3.75% at the end of its two-day meeting on Wednesday, following three consecutive rate cuts in 2025. Markets will focus on the post-meeting press conference for guidance on the policy outlook in the months ahead.
  • Jonas Goltermann, deputy chief markets economist at Capital Economics, said in a note, “While there are several potential culprits for the dollar’s drop, the main driver is the fallout from reports that the US Treasury is considering direct currency intervention."
  • US ADP Employment Change four-week average was reported at 7.75K, down from the previous report of 8K.
  • Senate Democratic leader Chuck Schumer has vowed to oppose a funding package that includes appropriations for the Department of Homeland Security, leaving Congress facing a January 30 deadline to avert a shutdown.
  • US President Donald Trump would soon announce his nominee to replace Fed Chair Jerome Powell, fueling speculation that the next chair could favor faster interest rate cuts.
  • Indian Prime Minister Narendra Modi’s government has agreed to immediately cut duties on select vehicles priced above EUR 15,000, with rates set to gradually fall to 10%, easing market access for automakers such as Volkswagen, Mercedes-Benz, and BMW.
  • The Indian Rupee may find early support from mildly positive US and Asian market sentiment, along with near-term optimism sparked by remarks from the US administration on possible tariff rollbacks. The US could remove the 25% punitive tariffs imposed on India in mid-2025 for purchasing Russian oil, following comments by US Treasury Secretary Scott Bessent on the sidelines of the World Economic Forum in Davos last week, which fueled speculation about easing trade tensions.
  • RBI’s INR 1 lakh crore liquidity infusion via government bond purchases is expected to stabilize funding conditions. With the Union Budget and clarity on US–India trade timelines pending, markets are likely to stay cautious, according to Reuters.

Technical Analysis: USD/INR rebounds toward record high near 92.00

USD/INR is trading near 91.60 at the time of writing. Daily chart analysis points to a sustained bullish bias, with the pair holding within an ascending channel. However, the 14-day Relative Strength Index (RSI) at 71.10 signals overbought conditions, indicating stretched momentum and a higher risk of a near-term pullback or consolidation.

Immediate resistance is seen at the January 23 all-time high of 91.96, followed by the upper boundary of the ascending channel near 92.10. On the downside, the nine-day EMA at 91.29 serves as initial support, while a break below it could expose the lower channel support around 90.20.

USD/INR: Daily Chart

Indian economy FAQs

The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.

India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.

Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.

India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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