The Indian Rupee (INR) rose slightly against the US Dollar (USD) as traders were cautious ahead of important US economic data. The USD/INR exchange rate fell to about 88.85, but the Rupee remains under pressure, close to its record high of 89.10, largely due to trade tensions between the US and India. The Reserve Bank of India (RBI) has stepped in several times since August to support the Rupee. Foreign Institutional Investors are pulling back from the Indian stock market, having sold shares worth Rs. 383.68 crore on Thursday.

Inflation and Interest Rates

India’s Wholesale Price Index (WPI) Inflation fell by 1.21% in October, exceeding the expected drop of 0.6%. This has led to speculation that the RBI might cut interest rates in December, especially after the Consumer Price Index (CPI) showed modest inflation growth of just 0.25%. The US Dollar weakened as the market prepares for potentially disappointing economic data after a temporary government shutdown. The chance of a Federal Reserve interest rate cut in December dropped to 50.7% from 63%. On the technical side, the USD/INR stayed above the 20-day Exponential Moving Average, with support at 87.07 and resistance at 89.12. The USD/INR pair is trading near its highest ever at 89.10, even though the US dollar has shown some short-term weakness. This is mainly due to our inflation numbers declining, with the WPI down 1.21% in October, following a similarly low CPI figure. This trend indicates a possible interest rate cut by the Reserve Bank of India (RBI) next month, which could further pressure the Rupee. The situation is complicated by foreign investors withdrawing funds from the Indian stock market. Data from the National Securities Depository Limited (NSDL) reveals that foreign institutional investors have sold over $2.5 billion in Indian equities in November 2025. This sell-off, which began in September, continues as long as the US-India trade deal remains unresolved.

Market Expectations

On the other hand, everyone is awaiting a wave of postponed US economic data following the recent government shutdown. The market seems to be preparing for bad news, particularly regarding the upcoming Non-Farm Payrolls and retail sales reports. Any significant weakness in these areas could quickly increase expectations for a Federal Reserve rate cut and weaken the dollar. This uncertainty makes it challenging to make straightforward directional bets, as the USD/INR pair might fluctuate sharply either way. The India VIX, a key measure of market volatility, has risen from 12 to over 16.5 in recent weeks, indicating that options are anticipating bigger moves. This suggests that strategies profiting from volatility, such as buying straddles or strangles on the USD/INR pair, could be more effective than just picking a side. It’s also essential to consider the RBI, which has been actively selling dollars to prevent the Rupee from surpassing 89.10. Historically, the RBI has had a robust reserve, with forex reserves reported at over $620 billion earlier this year, giving them significant resources for intervention. Therefore, traders should exercise caution when considering aggressive long positions on the USD/INR pair, as the central bank currently provides a strong resistance level. Create your live VT Markets account and start trading now.

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