US Dollar outperformance drives further Indian Rupee correction

• Continued US Dollar gains put the Indian Rupee under pressure.
• Concerns over faster Fed monetary tightening have supported the US Dollar.
• 6.09% YoY was the pace of India’s retail inflation in October, marking an acceleration.

94.19 is the level USD/INR approaches as its recovery extends. Having rebounded from a five-week low of 93.61, the pair advances on Friday as the Indian Rupee (INR) continues the previous day’s pullback against the US Dollar (USD), following several weeks of gains. The US Dollar’s outperformance reflects concerns that mounting United States (US) inflationary pressures will prompt the Federal Reserve (Fed) to adopt a more aggressive monetary tightening stance.

During Asian trading, the US Dollar Index (DXY) remains close to Thursday’s 19-month high of 103.24. The index measures the Greenback against six major currencies.

Dollar Index sets new high on firmer year-end Fed hike bets

A stronger outlook for Fed rate increases is supporting the Dollar’s advance, according to MUFG analysts. They say the US Dollar has “continued to strengthen,” taking the Dollar Index to “a fresh year-to-date high.” In their assessment, the Dollar’s “renewed upward momentum has been encouraged by expectations that the Fed is likely to speed up the pace of rate hikes in response to the recent run of stronger US inflation data.”

Tuesday’s US Consumer Price Index (CPI) release put monthly headline inflation at 0.4% and core inflation at 0.3%. Both readings exceeded expectations.

Attention now turns to October’s US Producer Price Index (PPI), due at 13:30 GMT.

Foreign inflows underpin recent INR gains

Robust foreign portfolio demand has supported the Indian Rupee, which Societe Generale strategists describe as “the surprise star performer in EMs this month,” with a total return of “+1.6% vs USD”. According to the strategists, FPI inflows have already “topp[ed] $5bn”, as investors diversify their market exposure “beyond AI-themed markets like South Korea and Taiwan,”. They also attribute improved sentiment to “optimism over Iran truce following US mid-term election that has deflated Brent toward $90/b.”

Faster Indian inflation raises prospect of further RBI rate hikes

6.09% year-on-year (YoY) was India’s October CPI reading, released on Thursday. It exceeded both the 5.93% forecast and the previous 5.54% reading, marking the 12th consecutive month of accelerating retail inflation.

The figures strengthen the argument for the Reserve Bank of India (RBI) to raise interest rates at its December policy meeting. At the October meeting, the Indian central bank also increased its key Repo Rate, lifting it by 25 basis points (bps) to 5.5%.

Persistent base effects remain a concern for Commerzbank Research analysts, who warn that “more worryingly for RBI, this low base effect will persist into November and December, which is likely to keep inflation elevated above 6.0% throughout Q4 2026.” Their wider assessment remains that price pressures will stay near the upper end of the central bank’s target band well into the medium term. This supports expectations of additional monetary tightening.

USD/INR technical outlook: EMA caps recovery

At 94.1525 on the daily chart, USD/INR retains a bearish short-term bias. Spot remains beneath the 20-day exponential moving average (EMA) of 94.5712, which limits upside progress. Although the Relative Strength Index (14) has recovered to 37.34, moving the pair out of oversold territory, bullish momentum remains weak while the price holds below this key EMA resistance.

A sustained move above immediate resistance at the 20-day EMA of 94.5712 would be required to reduce the prevailing downside bias. No nearby support is indicated by moving averages or Fibonacci levels. Trading below the EMA therefore leaves the pair exposed to further declines, while momentum indicators suggest only potential consolidation, rather than a convincing rebound.

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