The Indian Rupee has been having a tough time increasing in value against the US Dollar. Recently, it hit a low of around 89.25, prompting Indian importers to buy US Dollars at good prices. Last week, the Rupee made a strong recovery thanks to the Reserve Bank of India’s efforts to stabilize the currency. Foreign Institutional Investors raised their holdings by Rs. 3,598.38 crore last week but sold Rs. 457.34 crore on the following Monday.

Trade Agreement Challenges

Indian importers are still in high demand for US Dollars due to an unfinished trade agreement between the US and India. Negotiations have moved forward, but no agreement has been reached after six months of talks. In November, the Reserve Bank of India reported strong economic growth, driven by high demand from both rural and urban areas. Coordinated financial policies have helped the economy stay strong throughout the year. Although the US Dollar has gained strength against the Rupee, a slowdown in GDP growth is expected. The Bureau of Economic Analysis (BEA) is projected to announce a 3.2% growth rate, down from 3.8%. Currently, there’s only a 20% chance that the Federal Reserve will cut interest rates in January. The USD/INR pair is currently above the 20-day Exponential Moving Average of 90.1809, with a neutral 14-day Relative Strength Index of 54. Staying above this level supports a positive outlook, while dipping below could lead to further declines.

US Q3 GDP Data Focus

Our attention is turned to the US Q3 GDP data being released today, December 23, 2025. Indian importers are actively buying dollars when prices dip, but if US growth figures come in lower than expected, it could quickly reverse the USD/INR’s recent rise from 89.25. This creates a tense and unstable situation for the currency pair as we approach the low-trade holiday period. We should recall the Reserve Bank of India’s strong actions last week when the pair approached 91.55. India’s foreign exchange reserves, which stood at a healthy $640 billion in early December 2025, give the central bank the power needed to limit excessive Rupee weakness. Any sudden, speculative rise in the USD/INR will likely prompt the RBI to step in and sell. The continued demand for US Dollars from importers is crucial and will likely hinder any significant Rupee gain. This demand arises from the lack of a US-India trade deal and a growing trade deficit, which data from November 2025 shows has exceeded $30 billion. Without changes to these fundamental issues, steady demand for dollars will keep the currency pair anchored. On the US side, the Federal Reserve’s strong position against cutting rates anytime soon strengthens the Dollar’s outlook. This approach mirrors the policies from 2023-2024, when the Fed maintained high rates to ensure inflation was fully under control before relaxing them. With the market pricing in only a 20% chance of a rate cut in January, betting against the dollar is quite risky. Given these mixed signals, it’s more valuable to use options rather than making outright bets on futures in the coming weeks. Implied volatility for USD/INR is likely to rise around today’s GDP announcement and then decrease as we enter the new year. Traders might consider strategies like straddles to benefit from significant price movements either way, without needing to predict today’s economic data outcomes perfectly. Create your live VT Markets account and start trading now.

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