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As the Indian rupee hovers near record lows, currency traders are closely watching the US Federal Reserve’s policy announcement on Wednesday
Rupee
As the Indian rupee hovers near record lows, currency traders are closely watching the US Federal Reserve’s policy announcement on Wednesday, December 10. Markets are hoping that a 25-basis-point (bps) rate cut—coupled with a dovish tone from Fed Chair Jerome Powell—could weaken the US dollar and offer some relief to the battered Indian currency.
The rupee strengthened by 17 paise to 89.88 against the US dollar on Tuesday amid softness in the greenback and crude oil prices. The currency had slipped to its all-time low of 90.46 on December 4 due to continued uncertainty over the India-US trade agreement and sustained foreign capital outflows.
India and the US are also set to begin three-day discussions on the first phase of their proposed bilateral trade deal starting December 10.
US Fed Meeting: Market Expects a 25 bps Cut
Despite mixed US macroeconomic indicators, markets have largely priced in a quarter-point rate cut. According to CME’s FedWatch Tool, traders assign an 89% probability to a 25 bps cut.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, came in roughly in line with expectations. PCE rose 0.3% in September for the second consecutive month, while the year-on-year increase stood at 2.8%, compared with 2.7% in August.
However, the labour market sent conflicting signals: private payrolls plunged to just 32,000 in November—the sharpest decline in 2.5 years—while jobless claims unexpectedly dropped to a three-year low of 191,000 for the week ending November 28.
“Comerica Economics forecasts the FOMC to cut the federal funds target rate by 25 basis points to a range of 3.50%–3.75%. Several members may dissent again,” said Bill Adams, Chief Economist at Comerica Bank.
He added that the Fed is likely to remain non-committal about its rate outlook for 2026, given diverging opinions within the committee, and could signal steps to ease tightness in short-term funding markets.
Can a Rate Cut Lift the Rupee?
Experts believe a rate cut may provide some sentiment-driven support to the rupee.
“The US Fed is widely expected to cut rates by 25 bps. Lower US rates generally boost global risk appetite, improve equity valuations, and help ease depreciation pressure on the Indian rupee by narrowing interest differentials,” said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.
However, the impact may be limited, as markets have already priced in the move.
“A 25 bps rate cut will ease US financial conditions, but its effect on the rupee will be balanced. Any dollar softness may be offset by commodity prices and domestic macro factors,” said Ajit Mishra, SVP–Research, Religare Broking.
Mishra noted that while a rise in global liquidity typically lifts equity sentiment, foreign flows will depend more on the Fed’s forward guidance than on the cut alone.
Kotak Securities’ Anindya Banerjee echoed this view, saying the cut is already fully priced in.
“A dovish pivot strengthens the rupee; a hawkish tone pressures it. USD-INR is likely to trade in the 89.50–91.00 range. The breakout depends entirely on the Fed’s guidance,” he said.
According to him, a dovish Fed would weaken the dollar, attract stronger foreign inflows into Indian equities, and push the rupee toward 89.50. Conversely, a hawkish cut could strengthen the dollar, trigger mild outflows, and drive the rupee toward 91.00.
US Federal Reserve Meeting Schedule
The Federal Open Market Committee (FOMC) began its two-day policy meeting on Tuesday, December 9, 2025, and will announce its decision on Wednesday, December 10, 2025.
The Fed will release its policy outcome at 2 p.m. EDT, which translates to 12:30 a.m. IST on Thursday—an hour later than usual due to Daylight Saving Time (DST) in the US.
Click here to add News18 as your preferred news source on Google. December 10, 2025, 08:10 IST
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