USD/INR under pressure ahead of Trump-Putin meeting

Source: Fxstreet

August 14, 2025 04:39

• The Indian Rupee is trading higher against the US Dollar amid rising expectations of rate cuts by the Fed.
• U.S. Treasury Secretary Bessent anticipates a 50 basis point cut by the Fed in September.
• Investors await India-U.S. producer inflation data for July and the Trump-Putin meeting.

The Indian Rupee (INR) slightly extends its rise near 87.55 at the open against the US Dollar (USD) this Thursday. The USD/INR falls further as the dollar suffers from intense expectations that the Federal Reserve (Fed) will resume its monetary easing cycle in September, after pausing rate cuts since December 2024.

At the time of writing, the Dollar Index (DXY), which measures the greenback’s value against six major currencies, trades cautiously near two-week lows around 97.60.

According to CME’s FedWatch tool, traders have almost fully priced in a 25 basis point cut in September, which would bring rates to 4.00-4.25%. Dovish expectations increased after July’s Consumer Price Index (CPI) showed inflation grew at a moderate 0.2% monthly, softer than June’s 0.3%. The report eased fears about ongoing tariff impacts on prices.

Meanwhile, experts are divided on the rate cut in September. Goldman Sachs indicated in a note that it expects three 25-point cuts this year and two more in 2026. Conversely, analysts from the Commonwealth Bank of Australia said: “There will be another CPI and employment report before the September meeting that could determine the case for a cut.”

On Wednesday, U.S. Treasury Secretary Scott Bessent told Bloomberg TV that the Fed might implement a larger-than-usual 50 basis point reduction next month, citing weak employment data over the past three months. He added that rates need to be lowered by 150-175 points. “Rates are too restrictive. We should be 150 to 175 basis points lower,” he said.

Market Movers: The Indian Rupee Rises Against the Dollar

• The Rupee rises while the dollar faces selling pressure. The outlook for the Indian currency remains uncertain, with investors awaiting the U.S. President Donald Trump and Russian leader Vladimir Putin meeting scheduled for Friday in Alaska.
• Trump has called Putin to discuss ending the war in Ukraine. On Wednesday, Trump threatened “severe consequences” if Putin rejects a truce.
• The Trump-Putin meeting is highly significant for the Rupee outlook, given that the U.S. increased tariffs on imports from New Delhi to 50% for buying oil from Russia. Bessent also threatened to further increase tariffs on India if talks with Russia fail. “We imposed secondary tariffs on Indians for buying Russian oil. And if things don’t go well, sanctions or secondary tariffs could rise,” he said on Bloomberg TV.
• Ongoing foreign fund outflows from Indian stock markets keep the Rupee uncertain. On Wednesday, foreign institutional investors sold shares worth Rs. 3,644.43 crores. In August so far, they have reduced holdings by Rs. 22,264.75 crores, with only one day of net buying. Theoretically, currencies of economies experiencing significant foreign outflows tend to perform worse.
• The Indian currency is expected to stay on the sidelines as stock markets will be closed on Friday for Independence Day.
• Today, investors will focus on July producer inflation data from India and the U.S. It is estimated that India’s Wholesale Price Index (WPI) inflation deflated at a faster pace of 0.3% annually, compared to 0.13% in June. Meanwhile, U.S. Producer Price Index (PPI) is expected to have grown at a faster monthly and annual rate.

Technical Analysis: USD/INR Maintains 20-Day EMA

USD/INR trades near its weekly low of 87.55 at Thursday’s open. However, the short-term trend remains bullish as the 20-day Exponential Moving Average (EMA) slopes upward around 87.30.

The 14-day Relative Strength Index (RSI) falls near 60.00. A new bullish momentum could develop if the RSI stays above that level.

Looking downward, the 20-day EMA will serve as a key support. On the upside, the August 5 high around 88.25 will be a critical obstacle for the pair.

FAQs About the Indian Rupee

What are the key factors driving the Indian Rupee?

The Rupee is highly sensitive to external factors. The price of oil (the country depends heavily on imported oil), the value of the dollar, and foreign investment levels are influential. The Reserve Bank of India (RBI)'s direct intervention in currency markets to stabilize the exchange rate, as well as the interest rate level set by the RBI, are also important factors.

How do Reserve Bank of India decisions affect the Rupee?

The RBI actively intervenes in currency markets to maintain a stable exchange rate. It also tries to keep inflation at its target of 4% by adjusting interest rates. Higher rates often strengthen the Rupee due to “carry trade,” where investors borrow in countries with lower rates to invest in countries with relatively higher rates.

What macroeconomic factors influence the value of the Rupee?

Factors include inflation, interest rates, economic growth (GDP), trade balance, and foreign investment flows. Higher growth can attract more foreign investment, increasing demand for the Rupee. A less negative trade balance will eventually strengthen the Rupee. Higher interest rates, especially real rates (less inflation rates), are also positive. A lower risk aversion environment can boost Foreign Direct Investment and Portfolio Investment.

How does inflation impact the Indian Rupee?

Higher inflation, especially if it exceeds that of peers, generally negatively affects the currency. Inflation also raises the cost of exports, leading to more Rupees being sold to buy foreign imports. At the same time, higher inflation often prompts the RBI to raise interest rates, which can be positive for the Rupee due to increased demand from international investors.