The Indian Rupee (INR) is strengthening against the US Dollar (USD) as trade talks between the US and India begin. These discussions come with expectations that the Federal Reserve will lower interest rates by 25 basis points to a range of 3.50%-3.75%, with an 87.6% chance of this happening. The US Dollar Index (DXY) has dropped by 0.1%, hovering around 99.10. Investors are closely watching the Fed’s upcoming monetary policy announcement, which will greatly influence the Dollar’s future.

US And India Trade Talks

Trade negotiations between the US and India are heating up. India is looking to cut export tariffs to the US, which are currently at 50%. In December, foreign institutional investors (FIIs) have sold off investments in India, with total sales reaching Rs. 14,819.29 crores. In technical terms, the USD/INR is trading around 90.20, above the 20-day Exponential Moving Average (EMA). The Relative Strength Index (RSI) indicates strong momentum, though it has recently slowed down. The Federal Reserve primarily adjusts interest rates to meet inflation and employment goals. The next decision on interest rates is expected on December 10, 2025, with a forecast cut from 4% to 3.75%. Today, the Federal Reserve’s announcement is the key event. A 25 basis point rate cut is widely anticipated and already reflected in the market. Traders should pay attention to the new dot plot and Chairman Powell’s guidance for 2026. This anticipated cut follows the Bureau of Labor Statistics report showing that November’s Non-Farm Payrolls only added 85,000 jobs, well below the 150,000 expected. Additionally, the US Consumer Price Index (CPI) was slightly lower at 2.9% last month, supporting the idea that the Fed may ease its policies. This data suggests that the US economy is slowing down.

Managing USD Exposure And Strategy

Given the uncertainty regarding the Fed’s stance, we recommend using options strategies to manage US Dollar exposure. Buying straddles or strangles on major pairs like EUR/USD might be useful. This strategy allows traders to benefit from significant movements in either direction, taking advantage of anticipated volatility after the announcement. For those dealing with the Indian Rupee, the situation is intricate, with the USD/INR pair near 90.25. The ongoing trade discussions between the US and India could boost the Rupee if a favorable resolution is reached. However, it’s important to note that Foreign Institutional Investors have withdrawn over Rs. 14,800 crores from Indian markets this month, which poses challenges. The technical analysis for USD/INR indicates an upward trend, with prices staying above the 20-day moving average. We are looking at buying call options on USD/INR to capitalize on potential gains, especially if the Fed signals a pause after this rate cut, which could seem less dovish than expected. This approach would also help mitigate risks if trade talks yield exceptionally positive outcomes for India. We recall the market response during the Fed’s shift in late 2023, where initial rate cuts led to speculation about future easing. That period was marked by notable volatility in currency markets, a trend we expect to see again in the first quarter of 2026. This history suggests that the market’s reaction in the next few days will shape the coming weeks. With interest rates declining and the US Dollar facing pressure, assets like Gold—currently priced at around $4,200—are becoming more appealing. We expect a dovish statement from the Fed will further support Gold prices. Traders may consider call options on gold futures or gold-backed ETFs to profit from this trend. Create your live VT Markets account and start trading now.

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