The Indian Rupee has dropped in value against the US Dollar, reaching a record 91.10, due to ongoing outflows from foreign institutional investors. In November, India’s retail Consumer Price Index rose to 0.7%, staying below the Reserve Bank of India’s target range of 2%-6%. Meanwhile, the Wholesale Price Index decreased by 0.32%. Even though the Reserve Bank of India recently lowered the Repo Rate by 25 basis points to 5.25%, the absence of a trade agreement with the US is still straining the Rupee. In December, Foreign Institutional Investors sold off ₹19,605.51 crore. All eyes are now on the upcoming US Nonfarm Payrolls data for November.

Potential Fed Interest Rate Cuts

The Federal Reserve might cut interest rates twice by 2026, with thoughts of further cuts from the current 3.50%-3.75%. President Trump has criticized Fed Chair Jerome Powell, raising speculation about a potential replacement who aligns more with Trump’s economic goals. The US Dollar Index recently reached an eight-week low, indicating market caution. As the USD/INR trades above 91.00, technical indicators like the 14-day Relative Strength Index suggest that the pair may be overbought, which could lead to short-term corrections. Additionally, trade volume is being impacted by global economic changes. The USD/INR pair has risen to an all-time high around 91.10, largely due to continued selling by foreign institutions. According to NSDL data, Foreign Institutional Investors (FIIs) sold over ₹22,500 crore in the Indian equity market in just the first two weeks of December 2025. This ongoing outflow is the main factor putting downward pressure on the Rupee. Domestically, India’s retail inflation for November was reported at 5.1%, which is comfortably within the Reserve Bank of India’s target range. This situation reduces the urgency for the central bank to increase interest rates to support the currency, implying that monetary policy won’t immediately boost the Rupee. The RBI’s last meeting kept the repo rate steady at 5.25%, confirming this neutral position.

US Dollar Weakness

At the same time, the US Dollar is also showing signs of weakness. The US Dollar Index (DXY) has struggled near an eight-week low of 98.13. Markets are increasingly anticipating potential rate cuts by the Federal Reserve, with the CME FedWatch Tool indicating a nearly 70% chance of at least one cut by mid-2026. This broader weakness in the dollar could slow the Rupee’s decline. In the coming days, attention will shift to the US Nonfarm Payrolls (NFP) report for November. If the jobs number falls short of expectations, it could heighten speculation for Fed rate cuts, weakening the dollar and providing some relief for the Rupee. Conversely, a strong jobs report could delay those expectations and further drive the USD/INR rally. From a trading viewpoint, the clear upward trend suggests holding long positions on USD/INR, with a potential target of 92.00. However, with the 14-day RSI in overbought territory above 70, this rally might be overextended. Traders might consider using options, like buying call options or creating bull call spreads, to capture further gains while managing the risk of a sudden pullback. Alternatively, a more cautious approach would be to wait for a temporary dip before entering new long positions. The round figure of 90.00 could act as significant support. A drop to this level might offer a better entry point if FII outflows continue as expected. Looking back at 2022, aggressive global rate hikes led to substantial FII outflows and a continued decline of the Rupee. This historical context suggests that as long as foreign capital continues to flow out of India, the USD/INR is likely to trend upward. The focus will be on whether these outflows will begin to slow down. Create your live VT Markets account and start trading now.

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