The Indian Rupee lost its early gains against the US Dollar, closing at about 88.80 after the Reserve Bank of India (RBI) stepped in. They took action as the USD/INR exchange rate approached 89.10, which could put pressure on importers. Foreign Institutional Investors (FIIs) have been net sellers in the Indian stock market for four months. In October, they reduced their stakes by Rs. 2,346.89 crores, which is lower than the average of Rs. 43,290.32 crores from July to September. As November began, FIIs sold shares worth Rs. 1,883.78 crores.

The US Dollar’s Recent Strength

The US Dollar has strengthened, hitting a three-month high near 100.00 against major currencies. The chances of a rate cut by the Federal Reserve in December dropped from 94.4% to 67.3%. The USD/INR pair rose again, closing around 88.80, bouncing back from its 20-day Exponential Moving Average of 88.54. Key levels to watch are August’s low of 87.07 and high of 89.12. The Federal Reserve influences the strength of the US Dollar through its policies, such as Quantitative Easing (QE) and Quantitative Tightening (QT). QE generally weakens the Dollar, while QT tends to strengthen it. The Fed aims for price stability and full employment by adjusting interest rates. There is a clear standoff between the Reserve Bank of India and the wider market forces. The RBI’s recent actions to protect the Rupee as it approached its all-time high of 89.10 show their commitment to preventing a chaotic depreciation. India’s foreign exchange reserves were a robust $650 billion in late October 2025, giving them the ability to continue these interventions for a while.

Primary Challenges for the Rupee

The ongoing selling by Foreign Institutional Investors (FIIs) poses a significant challenge for the Rupee. After averaging over Rs. 43,000 crores in monthly withdrawals between July and September 2025, this selling trend continued into November. We have observed similar capital outflows from emerging markets, particularly during the Fed’s aggressive tightening cycle in 2022, which consistently affects the domestic currency. Meanwhile, the US Dollar is gaining strength, with the Dollar Index recently reaching a three-month high near 100.00. Market expectations for a rate cut in December have sharply declined, with the latest CME FedWatch tool showing probabilities below 70%, down from over 94% just a week ago. The October 2025 ADP employment report, which recorded a growth of 150,000 jobs compared to an expected 24,000, further supports the Fed’s cautious and data-driven approach. This environment suggests strategies to benefit from a period of stable prices or a potential breakout. Selling out-of-the-money call options with strike prices above 89.50 could be one way to bet on the RBI’s short-term success in limiting the Dollar’s rise. On the other hand, for those who anticipate a significant move, buying a straddle might be profitable if the exchange rate shifts dramatically in either direction. In the upcoming weeks, we should closely monitor daily FII flow data and any additional RBI interventions, as these factors will significantly influence short-term trends. The most important upcoming event is the next US inflation report, which will greatly impact the Fed’s December decision. Any surprising data could easily overshadow the RBI’s efforts and require a reassessment of current positions. Create your live VT Markets account and start trading now.

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