The Indian Rupee is gaining strength against the US Dollar, with the USD/INR pair hitting a monthly low of around 85.40. This shift follows a decline in the US Dollar just before the release of the US Nonfarm Payrolls data for June, scheduled for 12:30 GMT. Analysts expect to see a slowdown in job growth, predicting only 110,000 new jobs compared to 139,000 in May. The Unemployment Rate is also expected to rise from 4.2% to 4.3%. Furthermore, Average Hourly Earnings, a key indicator of wage growth, is expected to increase by 3.9% year-on-year. However, month-on-month growth for June is likely to slow down to 0.3%, down from 0.4% in May. Recent ADP Employment Change data shows a reduction in private sector jobs for the first time since the pandemic, with businesses laying off 33,000 employees instead of the expected addition of 95,000 jobs.

Tensions Around Tariff Policies

Concerns about tariff policies are affecting Foreign Institutional Investors, who sold Indian equities worth Rs. 3,531.76 crores in early July. There are worries about the US debt ceiling, especially after a tax and spending bill that could raise the debt to $40 trillion in a decade. The USD/INR pair is currently in a bearish trend, trading below the 20-day Exponential Moving Average, and the 14-day Relative Strength Index is below 50.00. Recent activity by the USD/INR pair shows a downward trend to a monthly low around 85.40, intensifying the downside bias. Markets are reacting to a weaker US Dollar ahead of upcoming labor data, which isn’t surprising—it often suggests that traders expect weaker US economic performance in the short term. The key focus will be on the Nonfarm Payroll report. With only 110,000 new jobs anticipated, down from 139,000 in May, the hiring pace looks like it’s slowing. If this prediction holds true, it may indicate that the Federal Reserve’s rate hikes could be slowing down sooner than anticipated. The expected rise in the unemployment rate to 4.3% supports this view, especially combined with the decrease in private sector jobs reported by ADP, which shows 33,000 job losses against earlier expectations for strong hiring.

Wage Growth And Market Reactions

In addition, Average Hourly Earnings, a key inflation measure for policymakers, is expected to show a 3.9% annual wage growth. While this seems stable, the drop in monthly pay growth to 0.3% indicates some softening in labor costs. Markets are likely to react quickly to this change, especially as it affects future policy expectations. If wage growth slows down, it could weaken the argument that inflation will persist due to rising salaries. We are also seeing significant investment outflows. Foreign Institutional Investors have sold over ₹3,500 crores of Indian equities in early July, suggesting a shift away from risk. This selling pressure may be linked to global uncertainties, particularly regarding proposed tariffs and rising fiscal issues in the US. The ongoing discussion about the expanding US debt, now predicted by some to reach $40 trillion within ten years, may shake global market confidence and lead to a flight from dollar assets. Technically, the bearish trend remains strong. The USD/INR pair is still below the 20-day EMA, and the Relative Strength Index is under 50, indicating no immediate signs of a reversal. This pattern suggests that further selling could occur, especially if weak US data confirms softening economic momentum. Any upward movement should be approached with caution, as it may merely be a temporary correction rather than a sustained upward trend. From a strategic viewpoint, caution is advised in pursuing short-term Dollar rallies unless economic indicators surprise significantly. Diverging inflation trends and interest rate expectations are driving the market flow. We will be alert for any spikes in volatility surrounding data releases and whether sustained movement below key technical thresholds leads to a stronger decline. Create your live VT Markets account and start trading now.

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