The Indian Rupee is getting stronger against the US Dollar after the Reserve Bank of India (RBI) stepped in to stabilize its value. The USD/INR rate dropped to about 90.50, as the RBI sold US Dollars in different markets to manage the exchange rate after it had hit 91.55. This month, Foreign Institutional Investors (FIIs) were selling more shares in India. However, on Wednesday, they turned around and bought Rs. 1,171.71 crore worth of shares. This change could brighten the mood in the market, even without a new US-India trade deal announcement.

USD Remains Steady

The US Dollar is stable while everyone waits for the US Consumer Price Index (CPI) data. Expected inflation is climbing to 3.1% year-on-year in November, which could affect interest rate predictions. The US Dollar Index has slightly increased, trading around 98.45 after rising from a ten-week low. There is some speculation about what the Federal Reserve will do with interest rates next. Recent comments from the US President about appointing a Fed chair who supports lower rates add to this uncertainty. Currently, the USD/INR market is correcting from its highs, trading near 90.50. Indicators such as moving averages and the Relative Strength Index (RSI) suggest that significant declines will happen only if it breaks below key support levels. When the USD/INR reached all-time highs of 91.55, the market faced heavy actions from central banks and concerns about capital flight. On December 18, 2025, the market is much more stable, with the rate closer to 88.50. The pressure from foreign investors has reversed, creating a new dynamic for traders.

Indian Market Stability

The RBI’s ability to intervene in the market is currently very strong. India’s foreign exchange reserves have hit a record $710 billion as of early December 2025, a jump from about $640 billion two years ago. This substantial reserve means the RBI can effectively sell dollars to prevent a sudden surge in USD/INR, keeping it between 89.50 and 90.00. In the US, the economic landscape has changed. The Federal Reserve is no longer taking a hawkish approach, as US core inflation cooled to 2.4% year-on-year, aligning more closely with the Fed’s target. With the Fed funds rate now at 4.50%, the market is anticipating gradual cuts in 2026, which will cap the US Dollar’s strength. This is a sharp contrast to the past, where FIIs were consistent sellers in the Indian market. Recently, FIIs have been net buyers of Indian equities for the last two quarters of 2025, bringing in over $20 billion this year, thanks to India’s strong GDP growth of 7.5% reported for the third quarter. This consistent buying provides support for the Rupee, which was lacking during earlier periods of strain. Given the strong RBI, a less aggressive Federal Reserve, and solid foreign investments, implied volatility in USD/INR options is expected to stay low in the coming weeks. Derivative traders may want to use strategies that benefit from low volatility, such as selling straddles or strangles, as the pair is likely to stay within a range. Buying far out-of-the-money call options carries high risk due to the chance of RBI intervention. The critical technical level to monitor is the 200-day moving average, currently around 88.10, which should serve as strong support. While the outlook remains stable, it’s essential to pay attention to any surprises from the upcoming US jobs data in early January. Any unexpected strength in the US economy could alter the Fed’s plans and introduce short-term volatility. Create your live VT Markets account and start trading now.

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