The Indian Rupee has dropped to nearly 88.20 against the US Dollar, even though the US Dollar is stable. This happens during hopeful discussions about a US-India trade deal that might be completed soon. Reports indicate that both countries have resolved most issues and are getting closer to finalizing the deal, but India’s Commerce Minister emphasizes that they won’t rush. Trade relations between the US and India have been tense since import tariffs increased to 50%, partly due to India’s oil imports from Russia. However, there are signs that foreign investments in India’s stock market are slowing down, which might support the Rupee. Traders are watching the activity of Foreign Institutional Investors, with sales at Rs. 244.02 crores this month, compared to an average of Rs. 43,290.32 crores over the last three months.

US Inflation Growth Cools

US inflation growth is slowing down, stirring talk of possible interest rate cuts by the Federal Reserve. Recent US Consumer Price Index (CPI) data shows that both headline and core inflation were 0.3% and 0.2% monthly. The US Dollar Index is hovering around 99.00, slightly weakened by easing trade tensions with China. The US Treasury is optimistic about reducing tariff threats with China, following constructive diplomatic discussions. The USD/INR exchange rate starts the week at 88.10, showing a downward trend and remaining below the 20-day EMA. Support and resistance levels are at 87.07 and 88.48, respectively. With soft inflation data, the Fed can concentrate on job growth and is expected to cut interest rates by 25 basis points. The Rupee’s decline near 88.20, despite positive US-India trade conversations, raises questions. This might indicate other influences at play, perhaps intervention from the Reserve Bank of India to keep exports competitive. It’s worth noting that the market may have already accounted for the optimism surrounding the trade deal. Historically, the RBI actively bought dollars throughout 2024 to prevent the Rupee from rising above the 85.00 mark, aiming for a weaker currency. Recent figures show India’s trade deficit grew to over $28 billion in September 2025, mainly due to high oil prices, reinforcing this perspective. A weaker Rupee helps manage this deficit, suggesting that the central bank’s dollar purchases will continue quietly.

US Federal Reserve Rate Cut Anticipated

The US Federal Reserve is likely to cut interest rates by 25 basis points this week, which should normally weaken the dollar. However, hawkish comments from Fed officials suggest this might be the last cut for a while, potentially providing support for the dollar. This “one and done” outlook indicates that any subsequent dollar weakness could be temporary. This uncertainty makes options strategies appealing. One-month implied volatility for USD/INR has risen from 5.8% to 6.5% recently, signaling that the market is preparing for a significant move. Traders uncertain of the direction but anticipating a breakout could opt for straddles or strangles to profit from a major price swing after the Fed meeting. For those using futures, important levels to monitor include support at the August low of 87.07 and resistance near the September low of 88.48. A decisive drop below 87.00 could signal stronger Rupee momentum, while failure to surpass 88.50 might keep the pair within a range. It’s wise to refrain from making significant directional bets until after the Fed announcement this Wednesday. Despite softening US inflation, the dollar stays robust against other currencies, driven by positive sentiment surrounding a US-China trade deal. This global strength poses a consistent challenge for the Rupee. Therefore, even if a US-India deal is announced, the Rupee’s potential upside may remain limited as long as the overall demand for the dollar remains strong. Create your live VT Markets account and start trading now.

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