The Indian Rupee (INR) struggled against the US Dollar (USD) in early trading on Thursday, staying just below its record high of 92.00 from Wednesday. This drop is mainly due to foreign institutional investors (FIIs), who have sold INR 34,041.21 crore during 13 out of the first 14 trading days in January. In India, everyone is waiting for the HSBC Composite Purchasing Managers’ Index (PMI) data for January, which will be released on Friday. This data is important as it will give insights into economic demand before the FY 2026-2027 budget announcement on February 1.

US Dollar Recovery

The US Dollar is recovering, supported by decreasing tensions between the US and EU, which helped the USD/INR rate go up. The US Dollar Index (DXY) remains around 98.80 after President Trump decided to negotiate rather than use force regarding the purchase of Greenland. The US has also placed a 10% tariff on several EU countries, raising fears of a trade war and reducing demand for riskier assets. The USD/INR exchange rate is at approximately 91.81, with the 20-day EMA indicating strength in the trend, even though the RSI shows overbought conditions at 73.28. Investors are also looking forward to the US Personal Consumption Expenditure Prices Index (PCE) data, which is a key inflation metric for the Federal Reserve that could influence monetary policy. The US dollar is expected to remain strong against the Indian rupee in the near future. Predictions suggest the USD/INR pair could reach its all-time high near 92.00, driven by a strong dollar and a weak rupee. This situation makes it sensible to prepare for further weakening of the rupee in the coming weeks.

FII Impact

The continuous selling by Foreign Institutional Investors is a major factor in the rupee’s decline, a trend seen in previous years as well. An outflow of over Rs. 34,000 crore this month alone reflects the heavy selling in January during both 2023 and 2024. This persistent selling pressure, linked to trade uncertainties, is likely to continue unless there is a significant positive shift. As geopolitical tensions between the US and EU ease, the US dollar is gaining strength. The US Dollar Index holding steady near 98.80 is supporting the upward movement of the USD/INR pair. This renewed trust in the dollar is making it a favored choice for global traders. Since the market appears to be overbought, it’s wise to avoid aggressive buying at these high levels. Instead, watching for a dip toward the 90.72 support level might present a better opportunity to enter a long position. Derivative traders could think about buying call options or setting up bull call spreads to benefit from further increases while minimizing risks. We should also monitor two significant upcoming events that might change this trend. Friday’s PMI data will provide crucial insights into India’s economic activity for 2026, following strong PMI readings above 56.0 from late 2025. Additionally, the Union Budget announcement on February 1 could greatly influence investor sentiment. Another strategy to exploit the current trend might include selling out-of-the-money put options with strike prices safely below the 90.72 support level. However, traders must stay alert for a potential reversal if the upcoming Indian economic data is unexpectedly strong or if the budget introduces favorable policies. While the upcoming US PCE inflation data is acknowledged, its focus on late 2025 figures will likely have a limited impact on current market decisions. Create your live VT Markets account and start trading now.

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