The Indian Rupee has reached a new two-month high of about 86.95 against the US Dollar. This increase comes amidst rising tensions between Iran and Israel, while the Federal Reserve has kept interest rates steady at 4.25%-4.50% for the fourth time in a row. The US Dollar Index has also climbed this week, hitting around 99.10. The ongoing conflict between Israel and Iran, now in its seventh day, could escalate, raising global tensions. In response, the US has sent military supplies to the Middle East to protect its bases.

Geopolitical Tensions Rise

Growing geopolitical tensions are increasing the demand for the safe-haven US Dollar, which is putting pressure on the Rupee. The Rupee remains weak due to concerns about rising Oil prices linked to the conflict, impacting countries like India that rely heavily on Oil imports. There are rising expectations for interest rate cuts from the Reserve Bank of India due to slowing inflation. The Fed has kept interest rates steady but warned about potential tariff impacts on inflation. The GDP growth forecast has been adjusted down from 1.7% to 1.4%. The Rupee is weakening against major currencies, particularly the Euro. The USD/INR remains on an upward trend, with support at the 20-day EMA around 85.95 and resistance at the April high of 87.14.

Market Reactions and Forecasts

In light of recent events, the Indian Rupee is trying to find a balance between local policy signals and global pressures. While hitting a two-month high of 86.95 against the US Dollar seems positive, the situation is more complicated when we consider other factors. The ongoing uncertainty in the Middle East, especially the conflict between Israel and Iran, is having a ripple effect on global markets, particularly on currencies sensitive to commodity prices. As tensions in the region continue into a second week, the confirmed deployment of US defense resources means that traders should be prepared for a possible extended conflict. This often leads to higher demand for safe-haven assets like the Dollar. As a result, the DXY Index rising above 99 is pushing other currencies, including the Rupee, into challenging positions. Oil prices are expectedly rising under these circumstances. For countries like India that depend heavily on imported oil, this price surge increases trade deficits and inflation risks. Although current inflation is still manageable, the Reserve Bank may feel pressure to take action on interest rates. While speculation about possible rate cuts is growing due to softer inflation, any decisions won’t happen immediately, so traders need to be ready for potential shifts in strategy. We’re closely monitoring the Fed’s updated forecasts. They’ve lowered growth expectations to 1.4% from 1.7%. Even though the interest rate range is unchanged at 4.25%-4.50%, there are worries about how tariffs may affect inflation in the future. This could impact Dollar exposure; any sudden rise in core inflation might prompt the Fed to raise rates sooner, affecting emerging market currencies. From a technical perspective, the momentum currently favors the US Dollar. The currency pair has established a strong support level at the 20-day exponential average around 85.95. The April high of 87.14 presents a key resistance point. For now, this sets the pair in a well-defined trading range that is suitable for short-term contracts. Market sentiment is also starting to diverge with the Euro. As the Rupee weakens against European currencies, there is an added risk through Euro cross-pairs. This shift in focus could reveal broader weaknesses in the Rupee against multiple currencies, complicating hedging strategies based solely on the USD/INR. We’re aligning our strategies with short-term support and resistance levels but are cautious. The uncertainty of global inflation, Oil price swings, and geopolitical risks suggest it’s a time for selective trades rather than broad bets. Traders should watch closely for any signs of extended military involvement in the region or unexpected changes in central bank policies before making new moves. Create your live VT Markets account and start trading now.

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