The Indian Rupee (INR) holds onto almost week-long losses against the US Dollar (USD) on Thursday. The USD/INR pair appears firm near 95.80, close to its all-time high of 95.88 posted on Wednesday, amid the continuous outflow of foreign funds from the Indian stock market and the oil prices remaining broadly elevated. In the Asian trade, the WTI Oil price trades flat at around $97, but is up almost 69% so far this year.
FIIs keep paring their stake in Indian stock market
So far in May, Foreign Institutional Investors (FIIs) have remained net sellers in seven of eight trading days and have offloaded their stake worth Rs. 26,172.45 crore. Amid growing concerns regarding India Inc.’s earnings projections due to higher energy prices, foreign investors continue to dump their stake in the Indian stock market.
Oil prices have remained higher due to fears of a prolonged closure of the Strait of Hormuz, a critical passage to almost 20% of global energy supply.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high oil price environment.
Trump-Xi believe Strait of Hormuz to remain open
A White House official has stated that both United States (US) President Trump and Chinese leader Xi Jinping believe the Strait of Hormuz should remain open. These comments from Washington came after the bilateral Trump-Xi meeting.
The White House official added, “Both countries agreed that Iran can never have a nuclear weapon.”
Both leaders were expected to discuss the Iran war issue, as US Secretary of State Marco Rubio stated to Fox News, while boarding Air Force One on Tuesday, that Washington hopes to convince Beijing to play a “more active role” in resolving the Iran crisis, South China Morning Post (SCMP) reported.
Beijing has the potential to pressure Tehran to reach a deal with the US, given that China is the biggest oil buyer of Iran.
A firm US Dollar also supports USD/INR
The continued outperformance by the US Dollar due to traders becoming increasingly confident that there will be no interest rate cuts by the Federal Reserve (Fed) this year is also supporting the USD/INR pair.
At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is flat around 98.45, but is close to its weekly high of 98.60 posted on Wednesday.
According to the CME FedWatch tool, the odds of the Fed holding interest rates at their current levels or delivering at least one interest rate hike this year are 66.8% and 32.2%, respectively.
Traders pare dovish Fed bets after the US Consumer Price Index (CPI) data release on Tuesday, which showed that the headline inflation accelerated to 3.8% Year-on-Year (YoY) in April, the highest level seen in almost three years. Before the CPI data release, the possibility of the Fed delivering at least one interest rate hike this year was 23.5%, according to the CME FedWatch tool.
Technical Analysis: USD/INR remains close to all-time high near 95.85
USD/INR trades firmly at around 95.80, extending its advance above the 20-day exponential moving average (EMA) at 94.68 and keeping a clear bullish near-term bias. The pair is supported by this rising EMA, while the Relative Strength Index (RSI) near 66 suggests strong but increasingly overbought momentum, hinting that upside progress could slow even as the broader uptrend remains intact.
On the downside, initial support is now seen at the 20-day EMA around 94.68, which acts as the first line of defense in case of a pullback, with the current price zone at 95.84 acting as a pivotal area for trend continuation. As long as USD/INR holds above this moving average, dips are likely to be viewed as corrective within the prevailing uptrend, while only a sustained break back below the EMA would start to undermine the bullish structure.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
