The Indian Rupee is underperforming against the US Dollar as the Dollar Index rises by 0.25% to about 99.00. The USD/INR pair is around 88.40. Updates on US monetary policy and trade tensions are affecting market sentiment. Market analysts expect the Federal Reserve to announce a 25-basis-point interest rate cut. This would lower the Federal Funds rate to between 3.75% and 4.00%, which could influence the value of the US Dollar.

Foreign Institutional Investment Trends

Recently, Foreign Institutional Investors (FIIs) invested Rs. 10,339.80 crores in Indian equities, a stark contrast to the Rs. 1,29,870.96 crores that flowed out from July to September. Reduced trade tensions between the US and India, thanks to eased tariffs, have boosted market sentiment. Globally, the focus is shifting to US-China trade discussions, with potential tariff reductions on the horizon. The Indian Rupee has shown mixed results against major currencies, particularly gaining strength against the GBP. The USD/INR is having difficulty surpassing the 20-day EMA, currently at 88.41, while the RSI indicates some buying interest. Key support is at 87.07, and resistance is at 89.12. The Federal Reserve’s actions, such as changes to interest rates, significantly affect the US Dollar. The Fed meets eight times a year to discuss policy, with strategies like Quantitative Easing (QE) and Tightening playing crucial roles. QE tends to weaken the Dollar, while Tightening usually strengthens it.

Federal Reserve’s Influence on USD

With the Federal Reserve set to announce its policy soon, the market has already factored in a 25-basis-point rate reduction. Thus, we should pay attention to the guidance for the December meeting. A hint of a pause in rate cuts could lead to a sharp rally in the US Dollar, while a dovish tone suggesting further cuts would put downward pressure on it. If the Fed indicates the need for more cuts due to a weakening labor market and the ongoing government shutdown, we might see USD/INR weaken. This situation could make buying put options or shorting futures a good strategy to target the August support level of 87.07. Conversely, if the Fed surprises with a hawkish stance, the pair might try to break its all-time high of 89.12. The upcoming meeting between Trump and Xi introduces significant uncertainty, making short-term options appealing. Buying a straddle could be a strategy to profit from potential price swings, as the outcome of these trade talks is unpredictable. This approach banks on increased volatility following the high-stakes meeting. In India, sentiment has clearly improved, demonstrated by the substantial FII inflow of over Rs. 10,000 crores. This shift from the heavy selling seen in the third quarter of 2025 shows that foreign investors are regaining confidence. This trend mirrors what occurred in early 2024 when strong capital inflows followed signs of political and economic stability. India’s strong economic fundamentals support a favorable outlook for the Rupee in the medium term. The IMF has recently projected GDP growth above 6.5%, making India one of the fastest-growing major economies. If trade tensions continue to ease, this economic divergence paints a weaker picture for the USD compared to the INR. Technically, the pair is trading in a wide range, presenting opportunities for option sellers. With key support at 87.07 and major resistance at 89.12, sellers can write out-of-the-money puts and calls. Selling puts with a strike below 87.50 or calls above 89.00 may be effective for premium collection. Create your live VT Markets account and start trading now.

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