The Indian Rupee is doing better against the US Dollar, with the USD/INR pair dropping to about 87.65. This decline is tied to expectations that the Federal Reserve may lower interest rates after the latest US consumer price index (CPI) data. The US Dollar Index has decreased by 0.4%, reaching around 97.70, the lowest it’s been in two weeks. The chance of a Fed rate cut in September has increased significantly, from 86% to 94%, according to the CME FedWatch tool.

US CPI Report

The latest US CPI report shows that inflation is at 2.7% year-over-year, which is slightly lower than expected. Core CPI, which excludes food and energy, grew by 3.1%, surpassing the forecast of 3%. Today, the USD is weakest against the Swiss Franc, while other major currencies are experiencing mixed changes. In India, the CPI has decreased to 1.55%, the lowest level since June 2017. India’s economic outlook is uncertain, with concerns that inflation might fall below the Reserve Bank of India’s (RBI) predictions. US tariffs on Indian exports and increased tariffs on imports from India could affect GDP growth. In technical analysis, the USD/INR pair is close to 87.65, showing a bullish trend backed by a higher 20-day EMA. Resistance is expected near the August 5 high of 88.25.

Market Concerns and Strategies

The market is anticipating a likely Fed rate cut in September, which is primarily driving the USD’s decline. This has pushed the USD/INR pair down to 87.65, creating opportunities to bet on further dollar weakness against the rupee. However, we must also consider India’s low inflation rate of 1.55%. This gives the RBI a strong reason to lower its own interest rates to boost growth. If the RBI cuts rates, it could weaken the Rupee, which may raise the USD/INR pair and offset the effects of a weaker dollar. Recent data from early August 2025 indicates that foreign investors have started withdrawing money from Indian government bonds, expecting a potential RBI rate cut. This capital outflow is putting pressure on the Rupee, showing that the market is split on what will happen next for the currency pair. This situation reminds us of 2019 when both the Fed and the RBI were reducing rates. During that time, while the USD/INR pair was volatile, it ultimately trended upwards as traders favored the safety of the US Dollar amid global economic concerns. A weaker dollar doesn’t always mean a stronger Rupee, especially when India’s economic future is uncertain. The technical chart indicates that even though the pair has dipped recently, it remains in a longer-term uptrend. We view the recent high of 88.25 as a key resistance point. Given the mixed signals from both central banks, we believe a volatility strategy, like buying both call and put options, may be wise for profiting from significant moves in either direction. In the upcoming weeks, we will monitor comments from RBI officials for clues about their next steps. Additionally, the forthcoming US jobs report will be critical in determining if the Fed will move ahead with a rate cut. Any surprises in this data could lead to sharp movements in the currency markets. Create your live VT Markets account and start trading now.

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