USD/INR surges as India-Pakistan conflict takes an ugly turn

USD/INR lurched to one of its biggest single-day moves in recent history.
Tensions are rising rapidly between India and Pakistan as military action spins up.
The two regions have been caught in multiple conflicts over the Kashmir region over the years.

Joshua Gibson FXStreet

USD/INR surged to fresh highs on Thursday, bolstered by a fresh pummeling of the Indian Rupee (INR). India and Pakistan are spooling up a direct military conflict as the two countries continue to lay competing claims over the Kashmir region. A recent attack on civilians in India-controlled Kashmir last month has sparked a harsh response, despite repeated denials from Pakistan that the attack was sponsored or supported by the Pakistan government.

India and Pakistan each control sections of Kashmir, but both sides have laid full claim over the entirety of the region, and have fought at least three direct wars over the territory in the past. The latest uptick in military tensions is beginning to spread geopolitical tensions across the wider region. Both countries are nuclear-capable powers, and each country has launched escalating attacks in the latest conflict.

Geopolitical tensions on the rise amid escalating military strikes

Pakistan noted that India’s latest counter-attack hit several densely-populated areas within neighboring Punjab, and Pakistan has vowed to become “more assertive” in responding to Indian-led military strikes. The Indian Rupee is poised to shed 1.5% in a single day of trading as escalating wartime tensions begin to weigh on the region. The Sensex Index, a market-weighted stock index of 30 well-established equities listed on the Bombay Stock Exchange, tumbled over 400 points early Thursday, with losses concentrated in bank stocks, automotive shares, and fast-moving consumer goods (FMCG) equities.

USD/INR technical forecast

Despite steep intraday losses weighing on the Indian Rupee, USD/INR is still trading into familiar near-term chart territory. The pair is on pace for its largest single-day gain since late 2019 as the Greenback gains ground on the Rupee, and a sharp reversal of recent bearish momentum has pushed the pair back above its 200-day Exponential Moving Average (EMA) near 85.25.

USD/INR has climbed nearly 1.5% on Thursday, tapping a multi-week high north of 86.00.

USD/INR daily chart

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

GBP/USD stays below 1.3400 after soft UK CPI data

GBP/USD struggles to gain traction and stays below 1.3400 in the second half of the day on Wednesday. The UK annual Consumer Price Index (CPI) inflation cooled to 2.6% in June against the market forecast of 2.7%, making it difficult for the British Pound gather recovery momentum. Meanwhile, investors keep a close eye on headlines coming out of the Middle East.

EUR/USD stabilizes near 1.1400 as markets focus on geopolitics

EUR/USD trades in a narrow channel at around 1.1400 on Wednesday. In the absence of high-impact data releases, escalating geopolitical tensions in the Middle East caps the pair's upside. On Thursday, the European Central Bank (ECB) will announce monetary policy decisions.

Gold holds gains above $4,100 undaunted by risk-off markets

Gold extends gains for the fourth consecutive day, standing comfortably above $4,100, unfazed by the risk-off market amid rising tensions in Iran and higher Oil prices. The pair has rallied nearly 2.5% so far this week and is on track for its best weekly performance in more than three months.

Cardano: Short-term recovery lacks retail support

Cardano price edges lower after the 50-day Exponential Moving Average at $1.770 capped two consecutive days of recovery seen earlier this week. ADA futures point to waning retail traction as Open Interest and trading volume decline amid elevated long liquidations. The technical outlook for ADA is bearish, as momentum remains subdued below a resistance trendline near $0.1782.

Chip stocks are more volatile than Oil

I continue to start the day by looking at these two charts: US crude & Kospi. The former is extending gains, trading above $86 per barrel for WTI and $92 per barrel for Brent, while the Kospi is up more than 4.5%, led higher by Korean chipmakers following a similar jump in VanEck's Semiconductor ETF yesterday.

US Dollar mid-year outlook: Exceptional currency, exceptional risks?

The US Dollar enters the second half of 2026 in a markedly different position from a year ago. The King currency has recovered, reflecting persistent US inflation, changing expectations for Fed policy, geopolitical tensions and renewed demand for defensive assets.