The Indian Rupee (INR) saw significant gains against the US Dollar (USD) on Thursday, pushing the USD/INR pair to revisit a 10-day low near 85.75. This sharp movement was primarily driven by a notable weakening of the US Dollar, which plummeted to a three-year low following controversial comments from US President Donald Trump regarding the Federal Reserve’s monetary policy independence.
Trump’s Attack on the Fed
During comments to reporters after Fed Chair Jerome Powell’s testimony before the Senate on June 24-25, President Trump publicly criticized Powell for not supporting interest rate cuts in upcoming policy meetings, going so far as to label him “terrible.” Further escalating concerns about potential political interference in the central bank’s decisions, Trump reportedly suggested he had “three or four people” in mind as possible replacements for Powell, mentioning figures like former Fed Governor Kevin Warsh, National Economic Council head Kevin Hassett, current Fed Governor Christopher Waller, and Treasury Secretary Scott Bessent.
These direct challenges to the Federal Reserve’s independence unsettled markets and dented confidence in the US Dollar’s perceived exceptionalism. This sentiment was clearly reflected in the US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, slumping significantly near the 97.25 mark.
Powell Defends Caution on Rate Cuts
Meanwhile, during his Senate appearance, Fed Chair Jerome Powell defended the central bank’s cautious stance on reducing interest rates. He stated that the Fed is being “careful about reducing interest rates” because “tariffs-driven inflation could prove to be persistent” for the economy, despite some easing in price pressures over recent months. Powell also issued a stern warning against the potential negative consequences of acting too quickly, emphasizing that “If we make a mistake, people will pay the cost for a long time.”
Factors Fueling the Rupee’s Strength
While the US Dollar faced political headwinds, the Indian Rupee benefited from a combination of domestic resilience and favorable external developments.
Resilient Economy: According to the Reserve Bank of India’s (RBI) monthly bulletin, the Indian economy has remained robust despite global uncertainties like new US trade policies and geopolitical tensions. High-frequency indicators for May 2025 showed resilient economic activity across India’s industrial and services sectors.
RBI Rate Cut: Earlier in the month, the RBI unexpectedly cut its key Repo Rate by 50 basis points to 5.5% and reduced cash reserve requirements for banks. This monetary easing was aimed at stimulating economic growth and making financial conditions more favorable for transmitting interest rate cuts into the economy.
- Falling Oil Prices: The Rupee also received a boost this week from a sharp decline in global oil prices. This fall followed the announcement of a ceasefire between Israel and Iran, which eased fears of a potential closure of the Strait of Hormuz, a critical global oil transit point. As a major oil importer, India’s economy and currency benefit significantly from lower energy costs.
- www.fxstreet.com
Despite the overall positive sentiment for the Rupee and Indian equities (the Nifty50 index hit a new year-to-date high near 25,350), it’s worth noting that Foreign Institutional Investors (FIIs) have been net sellers in the Indian equity markets for the past three trading days, with cumulative sales reaching Rs. 9,568.13 crores.
Upcoming US Data and Technical Outlook
Looking ahead, market focus will shift to the release of the US Personal Consumption Expenditure (PCE) Price Index for May on Friday. The PCE is the Federal Reserve’s preferred gauge of inflation. While the year-over-year reading is expected to show a slight increase (consensus 2.6% vs. previous 2.5%), the market impact on the US Dollar and Fed policy expectations is anticipated to be somewhat limited, as investors currently appear more focused on inflation concerns stemming from uncertainty surrounding tariff policies.
From a technical standpoint, the USD/INR pair is currently struggling to hold above the 20-day Exponential Moving Average (EMA) around 85.90, suggesting uncertainty in the near-term trend. The 14-day Relative Strength Index (RSI) has seen a strong bearish reversal, sliding vertically towards the 50.00 level after remaining above 60.00 in recent trading days. Key support for the pair is identified at the June 12 high of 85.70, while resistance lies at the June 24 high of 86.60.
