The Indian Rupee (INR) extends its recovery against the US Dollar (USD) on Friday. The USD/INR pair slides to near 95.90 as weakness in oil prices due to intensified optimism that the United States (US) and Iran will reach a deal soon has strengthened the Indian Rupee.
As of writing, the WTI Oil price trades 0.7% lower at around $96.27, closer to its weekly low of $94.94 posted on Thursday.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, attract bids following a sharp correction in oil prices.
Final draft of US-Iran deal is prepared
On Thursday, the Iranian Labour News Agency (ILNA) reported that a final draft between Washington and Tehran has been reached with mediation from Pakistan, and a deal can be announced within the next few hours. These headlines led to a sharp recovery in riskier assets and weighed heavily on oil prices.
However, market participants are still concerned about whether a deal between the two sides will be reached, as Iran remained adamant about keeping the near-weapons-grade uranium stockpiles in Iran and the recognition of Tehran’s authority on the Strait of Hormuz.
US Secretary of State Marco Rubio has also confirmed that there had been “some good signs” in talks to end the Middle East war but differences remain over Tehran’s uranium stockpile and controls over the waterway.
FIIs remain net sellers for third straight trading day
Overseas investors continue to dump their stakes in the Indian stock market amid concerns regarding India Inc.’s earnings projections, with oil prices still remaining elevated. On Thursday, Foreign Institutional Investors (FIIs) emerged as net sellers for the third straight trading day and offloaded their stake worth Rs. 1,891.21 crore.
Analysts at Bank of America (BofA) have stated that selling pressure from FIIs could continue till 2028, as foreign money is chasing Artificial Intelligence (AI)-linked plays elsewhere in Asia. The BofA has forecasted that India Inc.’s earnings growth could be about 8.5% in the current financial year, while markets in South Korea and Taiwan are projected to deliver stronger earnings growth.
Hawkish Fed bets support US Dollar
The US Dollar reflects broader strength even as oil prices have declined due to growing optimism on the US-Iran deal. At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, ticks higher to near 99.25, not so far from its six-week high of 99.51.
The US Dollar remains broadly firm as traders are confident that the Federal Reserve (Fed) will not cut interest rates this year. According to the CME FedWatch tool, the odds of the Fed holding benchmark lending rates at their current levels or delivering at least one interest rate hike this year are 50.8% and 48.1%, respectively.
Technical Analysis: USD/INR slides further to near 95.90
USD/INR falls further to near 95.90 in India’s afternoon trading hours on Friday. However, the pair maintains a bullish near-term bias as it holds above the 20-day Exponential Moving Average (EMA) at 95.40, keeping the recent uptrend intact.
The 14-day Relative Strength Index drops to near 60 after turning overbought, suggesting buyers still have control, though upside momentum has cooled down.
On the downside, immediate support is seen at the 20-day EMA around 95.40, with the current spot level itself acting as a nearby pivot as long as daily closes remain above that moving average. A sustained break beneath the 20-day EMA would hint at a deeper corrective phase towards 95.00. Looking up, the pair could aim to test 98.00 if it manages a firm break above 97.00.
(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.
