Fed’s Hawkish Stance Pushes Indian Rupee Below 85 Against US Dollar
The Indian Rupee (INR) declined below 85 per US Dollar for the first time, at 85.0675, on Thursday. This came after the Federal Reserve turned more hawkish, suggesting fewer rate cuts in 2025. This has placed pressure on the INR, which has already been under pressure due to a downturn in the economy and low capital inflows.
Fed’s Hawkish Projections and Impact on Emerging Markets
The Federal Reserve’s dot plot anticipates two rate cuts in 2025, whereas the previous dot plot of September expected four cuts. This strengthened the US dollar, applying pressure on emerging market currencies, such as the Indian Rupee. Jerome Powell, Chair of the Federal Reserve, also cautioned against further rate cuts, signaling a more conservative approach to monetary policy.
This outlook from the Federal Reserve spread a wider sell-off across other Asian currencies. The Korean Won, Malaysian Ringgit, and Indonesian Rupiah fell to 1.2% in a single day. India, Thailand, and Indonesia’s central banks intervened in the markets to cap the currencies’ volatility. The Reserve Bank of India (RBI) played a very active role in controlling the depreciation of the Rupee.
Factors Weighing on the Rupee
The Rupee is still struggling to reverse its position; the trade deficit has increased, and the Indian economy is Slower. The July-September quarter’s growth rate declined to a seven-quarter low, and record gold imports in November contributed to the broadening of the trade deficit. Higher domestic pressures and constant demand for dollars from importers and foreign clients escalated the INR’s depreciation rate.
Foreign capital inflows are low, and investors continued short positions in the Rupee, which rose to the highest levels seen in the last two years in December. Furthermore, most equity markets pointed to bearishness as well. The Nifty 50 and the BSE Sensex opened lower for the fourth day. A trading loss accumulated over banking and financials, metals, and technology dragged the index lower.
Technical Outlook for USD/INR
The technical chart of the USD/INR pair depicts a strong and steady upward trend line. Trading above the 100 EMA, the pair indicates continued bullish momentum. The Relative Strength Index (RSI) has been supporting the upward pressure for 14 days and remains near 65.85.
If the price forms an impulsive breakout beyond the psychological barrier of 85, then the price is likely to target 85.50. Nonetheless, the critical support remains at 84.82, and a further decline aims at 84.16, which is the 100-day EMA. Experts expect the Reserve Bank of India to continue with interventions to prevent excessive fluctuations that should only partially shield the local currency.
The immediate direction of the Rupee will depend on emerging global and domestic monetary policy cues and the macroeconomic surroundings. Market participants continue to look forward to further U.S. economic releases that may affect the next direction of the USD/INR pair.
