The Indian Rupee has strengthened against the US Dollar, nearing 90.08 on a day with low trading volume. So far this month, Foreign Institutional Investors (FIIs) have sold more than Rs. 26,900 crore in Indian stocks over 17 out of 20 days. The USD/INR pair’s outlook is positive due to continued foreign selling. Trade tensions remain high, with the US imposing 50% tariffs on Indian imports. Talks are still in progress, but no agreement has been reached.

Effect of Federal Reserve Policies

The Federal Reserve recently cut interest rates by 25 basis points, reducing them to between 3.50% and 3.75%. This is the third consecutive cut, with expectations for further easing. While the Fed predicts one rate cut next year, market views vary. Currently, USD/INR is close to its 20-day Exponential Moving Average of 90.20, showing continued interest. The Relative Strength Index is at 54, indicating a balanced market. If it stays above the 20-day EMA, we could see more gains, but dropping below might lead to a pause in growth. The Federal Reserve influences the US Dollar through interest rate changes aimed at price stability and full employment. Practices like Quantitative Easing can weaken the Dollar, while Quantitative Tightening can strengthen it. The Fed meets eight times a year to set monetary policy. Today, the Rupee shows slight gains, but this may just be a short-term reaction in a slow holiday market. The ongoing selling by FIIs, with over Rs. 26,900 crore withdrawn this month, suggests underlying weakness, similar to heavy selling earlier this year.

Ongoing Trade Issues and Market Forecasts

This investor departure is linked to unresolved trade problems with the US, which create uncertainty. We are keeping an eye on today’s Q3 trade deficit figures, as a larger deficit could weigh down the Rupee. Based on trends from the first half of 2025, we expect Q3 to possibly exceed $75 billion, which supports a bullish outlook for USD/INR. On the US Dollar’s side, traders await the FOMC minutes for guidance in early 2026. There is a notable gap between the Fed’s forecast of one rate cut next year and market expectations for at least two cuts. Currently, the CME FedWatch Tool shows over a 60% chance of a second cut by September 2026, which the minutes may clarify. The most significant uncertainty for the Dollar is the upcoming announcement of a new Fed Chair in January. If Kevin Warsh is appointed, he may take a tougher stance on inflation, limiting rate cuts and boosting the Dollar. This political decision adds unpredictability, suggesting that buying options to manage expected volatility could be wise. For now, the technical outlook favors holding onto the US Dollar against the Rupee. It’s important to consider the 20-day moving average around 90.20 as a key support level for adding positions or setting stops. Our main target in the coming weeks is to reach the all-time high of 91.55. Create your live VT Markets account and start trading now.

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