Is USD/INR Poised for a Surge as India’s Cooling Inflation Signals a Game-Changing RBI Rate Cut?
Isn’t it fascinating how the dance between currencies can reveal so much about the global economic stage? Just recently, the Indian Rupee strutted its stuff against the US Dollar, climbing higher as the Greenback found itself on the ropes, battered by growing dovish whispers from the Federal Reserve. You might ask, how does a faster pace in US core inflation—a solid 3.1% in July—jive with a retail inflation slowdown in India, tipping the scales at a mere 1.55%, the slowest in eight years? It’s like watching a high-speed chase where the usual suspects—interest rates, inflation data, and geopolitical tariffs—are all throwing curveballs. The intriguing part? The USD/INR pair plummeting near 87.65 while the Fed’s dovish chatter raises bets on potential interest rate cuts . Yet, analysts caution that the inflation pulse is just heating up, puzzling markets about what’s truly next. Meanwhile, India’s promising inflation cool-off might open doors for more rate cuts, but looming US tariffs threaten to trim growth. So, is the Rupee’s recent rally a confident sprint or a cautious toe-dip into uncertain waters? Either way, the upcoming moves on the monetary chessboard promise to be anything but dull. LEARN MORE
- The Indian Rupee gains against the US Dollar as the latter has been battered by intensifying Fed dovish expectations.
- The US core inflation grew at a faster pace of 3.1% in July.
- India’s retail inflation grew at the slowest pace of 1.55% in eight years.
The Indian Rupee (INR) trades higher against the US Dollar (USD) in afternoon trading hours on Wednesday. The USD/INR pair falls to near 87.65 as the US Dollar extends its downside as traders have raised bets supporting interest rate cuts by the Federal Reserve (Fed) in the September monetary policy meeting after the release of the US CPI data for July.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.4% lower to near 97.70, the lowest level seen in two weeks.
According to the CME FedWatch tool, the probability of the Fed to cut interest rates in the September meeting has increased to 94% from almost 86% recorded on Monday.
The US CPI report showed that the headline inflation grew at a steady pace of 2.7% on year, slower than expectations of 2.8%. The core CPI – which excludes volatile food and energy items – rose at a faster pace of 3.1%, compared to expectations of 3% and the prior reading of 2.9%.
Contrary to market expectations, analysts at Scotiabank have stated that a “closer look at the July CPI data shows inflation’s pulse accelerated to its highest pace since January, with core consumer prices up 0.3% on the month. While further inflation is due before the September meeting, nothing in here says cut.”
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | INR | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.45% | -0.53% | -0.38% | -0.12% | -0.45% | -0.10% | -0.53% | |
| EUR | 0.45% | -0.03% | 0.03% | 0.32% | 0.01% | 0.36% | -0.08% | |
| GBP | 0.53% | 0.03% | 0.10% | 0.35% | 0.04% | 0.42% | -0.03% | |
| JPY | 0.38% | -0.03% | -0.10% | 0.26% | -0.08% | 0.24% | -0.15% | |
| CAD | 0.12% | -0.32% | -0.35% | -0.26% | -0.35% | 0.09% | -0.38% | |
| AUD | 0.45% | -0.01% | -0.04% | 0.08% | 0.35% | 0.37% | -0.09% | |
| INR | 0.10% | -0.36% | -0.42% | -0.24% | -0.09% | -0.37% | -0.38% | |
| CHF | 0.53% | 0.08% | 0.03% | 0.15% | 0.38% | 0.09% | 0.38% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: Indian Rupee remains under pressure as inflation cools down
- The downside move in the USD/INR pair is majorly driven by the US Dollar as the Indian currency is also under severe pressure. The outlook of the Indian Rupee has become uncertain as growing risks of India’s retail inflation undershooting the Reserve Bank of India’s (RBI) already-lowered inflation forecast have paved the way for more interest rate cuts.
- On Tuesday, India’s retail Consumer Price Index (CPI) came in at 1.55% on year, the lowest level seen since June 2017. Economists expected price pressures to have grown at a moderate pace of 1.76% against the prior reading of 2.1%. In the monetary policy announcement earlier this month, the RBI revised inflation projections for the current financial year to 3.1% from 3.7% anticipated earlier.
- Cooling inflationary pressures in India, which demonstrate muted consumer demand, have come at a time when the economy is anticipating tariffs imposed by the United States (US) to shave off 30-40 basis points (bps) Gross Domestic Product (GDP) growth.
- According to a written response from Union Minister of State for Finance Pankaj Chaudhary to Lok Sabha MP Abhishek Banerjee, “It is estimated that around 55% of the total value of India’s merchandise exports to the US is subject to this reciprocal tariff,” Hindustan Times (HT) reported.
- Last week, US President Donald Trump raised tariffs on imports from New Delhi to 50% for purchasing Oil from Russia. On the trade deal outlook with India, US Treasury Secretary Scott Bessent said in an interview with Fox Business on Tuesday that New Delhi had been “a bit recalcitrant” in trade talks with the US.
Technical Analysis: USD/INR falls to near 87.65
USD/INR drops to near 87.65 on Wednesday. However, the near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 87.30.
The 14-day Relative Strength Index (RSI) oscillates inside the 60.00-80.00 range, suggesting a strong bullish momentum.
Looking down, the 20-day EMA will act as key support for the major. On the upside, the August 5 high around 88.25 will be a critical hurdle for the pair.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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