The Indian Rupee weakened by 0.5% to 88.24 against the US dollar on Monday, even as optimism grew around a potential US-India trade deal reportedly nearing completion. While officials from both nations indicate that most key issues have been resolved, India’s Commerce Minister has reiterated that the government will not rush the process.
US-India trade deal optimism meets rupee weakness
Despite positive developments, the rupee’s fall signals other underlying pressures. Analysts believe that the Reserve Bank of India (RBI) might be intervening to keep the rupee weaker, supporting India’s export competitiveness amid a widening trade deficit of $28 billion in September 2025, primarily driven by high oil prices.
In the past, the RBI has actively purchased dollars to prevent the rupee from strengthening beyond 85.00 per USD — a strategy that appears to be continuing this year.
Cooling US inflation and Fed expectations
In the US, headline and core inflation rose by just 0.3% and 0.2%, respectively, fueling expectations of a 25-basis-point interest rate cut by the Federal Reserve this week. However, Fed officials have hinted this could be the final cut in the current cycle — a “one-and-done” scenario that may keep the US dollar supported.
The US Dollar Index remains firm near 99.00, bolstered by easing US-China trade tensions and renewed optimism from US Treasury officials about reducing tariff threats.
Technical outlook for USD/INR
The USD/INR pair opened at 88.10 and traded with a downward bias, remaining below its 20-day EMA. Traders are watching key technical levels:
- Support: 87.07 (August low)
- Resistance: 88.48 (September low)
A break below 87.00 could signal renewed rupee strength, while a failure to breach 88.50 would likely keep the pair range-bound.
Market positioning and volatility
Foreign Institutional Investors (FIIs) recorded Rs. 244.02 crore in outflows this month — significantly lower than the Rs. 43,290 crore monthly average over the past three months — a sign that capital flight is stabilizing.
Options traders, meanwhile, are preparing for potential volatility following the Fed’s decision, with one-month implied volatility for USD/INR rising from 5.8% to 6.5%, suggesting expectations of a sharp post-announcement move.
Bottom line
Despite progress in US-India trade negotiations and cooling US inflation, the rupee’s fall indicates that macro fundamentals — trade deficit pressures, RBI intervention, and global dollar strength — continue to dominate sentiment. While short-term volatility remains, any rupee recovery may stay limited until the Fed decision provides clearer direction.
