USD/INR holds correction from record highs ahead of US inflation data

The Indian Rupee (INR) moves higher against the US Dollar (USD) after a flat opening on Thursday. The USD/INR pair drops to near 90.50 amid expectations that the Reserve Bank of India (RBI) could intervene again to support the Indian Rupee.

The Indian Rupee flattens against the US Dollar at around 90.80 after a sharp recovery move on Wednesday.
FIIs turned out to be net buyers in the Indian stock market on Wednesday.
US President Trump said that Fed Chair Powell’s successor would lower interest rates by a lot.

There is a "high probability" that the central bank may step in again today, traders said, Reuters reported.

On Wednesday, the RBI sold US Dollars aggressively in both spot and non-deliverable forward (NDF) markets to halt the one-way rally in the pair when it hit record highs at 91.55.

The Indian Rupee has been underperforming the US Dollar for a long period, as foreign investors are consistently offloading their stake in the Indian stock market due to the United States (US)- India trade stalemate. This month, Foreign Institutional Investors (FIIs) remained net sellers on all trading days, but have surprisingly turned out to be net buyers on Wednesday. The net purchase by FIIs on Wednesday was Rs. 1,171.71 crore worth of shares.

A sudden halt in FIIs' selling in the Indian equity market might boost risk sentiment; however, the impact would be short-lived, given the absence of an announcement on a US-India trade deal.

Trump stated new Fed chairman believes a lot in lower interest rates

The Indian Rupee holds recovery against the US Dollar on Thursday, even as the latter trades higher ahead of the US Consumer Price Index (CPI) data for November, which will be published at 13:30 GMT. At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises to near 98.50..
The inflation data will influence market expectations for the US interest rate outlook. Economists expect the US headline inflation rate to have risen to 3.1% year-on-year, up from 3% in October. The core CPI - which excludes volatile food and energy items - is expected to have grown steadily by 3%.
In the last two trading days, the US DXY regained ground after hitting a fresh 10-week low near 98.00 on expectations that there will be no interest rate cut in the first policy meeting of 2026. According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 25 basis points (bps) to 3.25%-3.50% in the January meeting is 24.4%.
Traders hesitate to raise Fed dovish bets as Chairman Jerome Powell stated in last week’s policy meeting that “the bar for another interest rate cut is very high."
Broadly, the US Dollar seems on the back foot as Fed Chair Powell’s successor is expected to support more interest rate cuts in his term, assuming that his decisions would be more biased towards US President Donald Trump’s economic agenda.
Earlier in the day, US President Trump said in a national address, "I’ll soon announce our next chairman of the Federal Reserve, someone who believes in lower interest rates, by a lot, and mortgage payments will be coming down even further." Such a scenario will hurt the Fed’s independence and weigh on the US Dollar.

Technical Analysis: USD/INR sees further correction below 20-day EMA

USD/INR trades lower at around 90.50 on Thursday. However, the upward bias remains intact as the pair holds above the rising 20-day Exponential Moving Average (EMA). which is at 90.2106. The 20-day EMA continues to slope higher, keeping pullbacks contained.

The 14-day Relative Strength Index (RSI) at 63.40 stays in bullish territory after easing from overbought, confirming firm momentum.

Bulls retain control while daily closes remain above the 20-day EMA, with dips expected to find support in that band. A decisive break below the 20-day EMA would be followed by a deeper retracement to near the September 24 high at 89.12. Looking up, the spot could advance to 92.00 if it rises above Wednesday's high of 91.55.

(The technical analysis of this story was written with the help of an AI tool.)

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.