The USD/INR currency pair opened at 90.20 on the last trading day of 2025, showing minimal movement due to low trading volumes. Throughout the year, Foreign Institutional Investors (FIIs) sold off Rs. 30,752.24 crore in equities for nine months, largely because of ongoing trade tensions between the US and India. In 2025, US-India trade relations deteriorated as the US imposed a 50% tariff on Indian imports, including a 25% tax on oil from Russia. Meanwhile, the US Dollar gained slight traction in Asian markets, supported by Federal Reserve officials advocating for more interest rate cuts to bolster the US job market.

Federal Policy Changes

Minutes from the Federal Open Market Committee in December hinted at a shift toward a neutral policy to protect jobs. This has raised expectations for potential monetary easing, shaping future policy decisions. US President Donald Trump is expected to announce the new Federal Reserve Chair in January 2026, following Chairman Jerome Powell’s departure. The release of the FOMC minutes is crucial, as it provides insights into the Fed’s interest rate plans, affecting market reactions based on its tone. As we close out 2025, the USD/INR pair remains stable at 90.20, but trading volume is very low. It’s wise not to rely on these calm holiday markets; true market direction will become clear when traders return in January. Typically, the start of the new year brings increased volatility as new positions are formed. The Rupee is under significant pressure, with FIIs withdrawing over Rs. 30,752 crore in 2025. This trend of foreign selling has persisted for nine months, severely impacting the Indian currency. A similar trend occurred in 2022 when the US Federal Reserve raised rates aggressively, suggesting this pressure on the Rupee may continue. **Trade and Currency Struggles** Adding to the challenges are ongoing trade issues with the US, which has imposed a 50% tariff on certain Indian goods. This undermines India’s export competitiveness and weakens the Rupee’s outlook. We can compare this situation to the US-China trade war from 2018 to 2020, which led to prolonged weakness in the Chinese Yuan. On the flip side, the US Dollar is also facing challenges due to a dovish Federal Reserve signaling more interest rate cuts to support jobs. A recent report revealed that US Nonfarm Payrolls added only 95,000 jobs in November 2025, far below the expected 150,000. This reinforces the need for looser monetary policy, which typically weakens a currency and creates a tug-of-war for the USD/INR pair. The most significant event approaching is the January announcement of a new Fed Chair. This adds uncertainty, and we anticipate increased currency volatility options pricing leading up to the decision. Any indication that the new Chair may take a more or less aggressive stance on rate policy than Jerome Powell could trigger sharp market movements. Considering these mixed signals, buying USD/INR call options seems like a wise strategy for the upcoming weeks. This approach allows us to benefit from any further Rupee weakness driven by outflows or trade concerns while limiting risk if an unexpectedly dovish Fed Chair is appointed, leading to a weaker US Dollar. Create your live VT Markets account and start trading now.

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