The Indian Rupee (INR) has weakened against the US Dollar (USD), even as investors absorbed a dovish interest rate outlook from Federal Reserve (Fed) Chair Jerome Powell during the Jackson Hole (JH) Symposium. The USD/INR pair rose to near 87.60, reflecting resilience in the greenback despite selling pressure in the broader USD markets.
At the time of writing, the US Dollar Index (DXY) is striving to regain ground near an almost four-week low of 97.70, signaling mixed investor sentiment amid global economic uncertainties. Savina Petrovic, broker at Primeber Group, carefully analyzes this topic in her latest write-up.
Powell Signals Dovish Stance Amid Labor Market Risks
On Friday, Powell surprised markets by delivering a dovish guidance on monetary policy, highlighting downside risks to employment. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said.
He further emphasized that labor market risks could materialize rapidly, affecting the macro outlook. Investors had expected a continuation of the “wait and see” approach, given that inflation remains above the Fed’s 2% target.
Powell noted that tariffs imposed by the United States could cause temporary upward price pressures, but he expects the impact to be short-lived. “Possible that tariff-driven upward pressure on prices could spur lasting inflation dynamics, but unlikely given downside labor market risks,” he added.
USD/INR Faces Pressure From US-India Trade Tensions
Despite a soft USD backdrop, the Indian Rupee struggled due to ongoing trade tensions between India and the United States. Imports from India are now subject to 50% tariffs, the highest among Washington’s trading partners.
Such tariffs reduce the competitiveness of Indian goods in the global market, pressuring exporters to potentially lower prices and affecting trade balances.
To mitigate the impact of global trade risks, the Indian government has implemented tax cuts aimed at boosting domestic consumption. Prime Minister Narendra Modi announced intentions to unveil new Goods and Services Tax (GST) reforms around Diwali, which could stimulate consumer spending, particularly on discretionary goods.
Finance Minister Nirmala Sitharaman has indicated that GST tax slabs may be revised from four to two, a move expected to enhance liquidity in the domestic economy.
Foreign Fund Outflows Drag on the Rupee
The continuous outflow of foreign funds has also weighed on the INR. Through August, Foreign Institutional Investors (FIIs) have reduced stakes worth Rs. 25,751.02 crores from Indian equity markets, contributing to currency depreciation.
Indian equity markets opened the week on a positive note, driven by risk-on sentiment following Powell’s dovish commentary. However, indices such as the Nifty50 struggled to maintain early gains and are now testing the key support level of 24,900.
Upcoming Catalysts: Q2 GDP Data
This week, market attention will turn to India’s Q2 Gross Domestic Product (GDP) data, due on Friday. The Indian economy recorded a 7.4% annual expansion in the first quarter, setting a high benchmark for expectations. Positive GDP growth may provide support for the INR, while any disappointment could prompt further gains in USD/INR.
Technical Analysis: USD/INR Trend Remains Bullish
From a technical perspective, the USD/INR pair continues to trade above the 20-day Exponential Moving Average (EMA) near 87.35, indicating a near-term bullish trend. The pair opened at 87.60 on Monday, remaining within Friday’s trading range.
The 14-day Relative Strength Index (RSI) has rebounded from 50.00, signaling the potential for fresh bullish momentum if the RSI surpasses 60.00. On the support side, the July 28 low around 86.55 will act as a critical level, while the August 5 high near 88.25 represents the immediate resistance for the pair.
Overall, despite dovish signals from the Fed, the INR remains under pressure due to trade tensions, foreign fund outflows, and domestic economic risks. The USD/INR trend suggests a cautious bullish bias, with technical indicators pointing to potential upside targets near 88.25, unless fundamental data such as GDP growth or trade developments shift market sentiment.
Conclusion
The USD/INR pair continues to demonstrate volatility amidst a complex interplay of global monetary policy, trade tensions, and domestic economic reforms. While the Fed’s dovish stance might have been expected to weaken the USD, persistent US-India trade concerns and foreign capital outflows have kept the Indian Rupee on the back foot.
Traders will closely monitor technical levels like 87.35 EMA and 86.55 support, alongside macroeconomic releases, to gauge the next direction of USD/INR.
