The Indian Rupee (INR) trades lower against the US Dollar (USD) on Tuesday. The USD/INR pair rises to near 94.85 as a firm US Dollar due to escalated hawkish Federal Reserve (Fed) bets has faded the impact of lower oil prices amid progress in the United States (US)-Iran peace talks for a lasting deal.
During press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades firmly near 101.00, the highest level seen in over a year.
US Dollar outperforms amid hawkish Fed bets
The US Dollar continues to outperform its currency peers, as market experts appear confident that the Federal Reserve (Fed) will deliver a number of interest rate hikes this year.
Analysts at Bank of America (BofA) expect the Fed to deliver three interest rate hikes of 25 basis points (bps) in September, October, and December meetings, a sharp turnaround from the anticipation that the central bank will stand pat this year.
“The data simply don’t warrant cuts this year. Core inflation is too high, and moving up. The solid April jobs report was the last straw, especially given hawkish Fedspeak,” BofA analyst said.
In the monetary policy announcement last week, the Fed left interest rates unchanged in the range of 3.50%-3.75%, as expected; however, the dot plot, which reflects where policymakers collectively see the Federal Funds Rate heading in the short-to-long term, showed that interest rates could reach 3.8% by the year-end.
Continued progress in US-Iran talks keep oil prices lower
On Tuesday, the MCX Crude Oil contract expiring on July 20 is 0.2% higher to near 7,000, but is close to its over three-month low of 6,897 posted last week. Oil prices have remained lower amid progress in technical talks between the US and Iran.
Earlier in the day, US Vice President (VP) JD Vance expressed progress in technical talks with Tehran. “Yes, there was a little bit of threatening, there was a little bit of whining, but at the end of the day, the talks continued, and we made great progress,” Vance said, CNBC reported.
On Monday, US VP Vance said that Tehran had agreed to permit International Atomic Energy Agency (IAEA) inspectors back into Iran, calling it a “major milestone for the American people and the first step in permanently denuclearizing or permanently ending a nuclear weapons program in Iran.”
Lower oil prices bode well for currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.
India’s flash HSBC PMI expands moderately
India’s preliminary HSBC Purchasing Managers’ Index (PMI) expands again in June; however, the pace of growth has moderated in both manufacturing and services sector activity. The Composite PMI has arrived at 57.4, lower than 59.3 in May.
“Private sector activity eased a bit in June. Growth of manufacturing output softened a tad as inventory-building lost steam after a few hectic months. New export orders remained resilient and the order-to-inventory ratio ticked up, pointing at resilient manufacturing activity down the line. Input costs across the private sector rose, but at the slowest pace in five months,” Pranjul Bhandari, Chief India Economist at HSBC, said.
Technical Analysis: USD/INR holds key support level near 94.00
USD/INR trades higher at around 94.85, but still holding a bearish near-term bias as price sits below the 20-period Exponential Moving Average (EMA) at 94.99 and under a broader downward resistance trend line that comes in near 95.57. The loss of traction below these caps suggests rallies are likely to be faded, while the Relative Strength Index (14) hovering under the 50 mark on the daily chart hints at waning upward momentum rather than outright oversold conditions.
On the topside, initial resistance is located at the 20-period EMA around 95.00, with a stronger barrier at the descending trend line near 95.57, which would need to be cleared to ease the current downside pressure. On the downside, immediate focus stays on the rising support trend line near 94.22, acting as the next key floor; a decisive break beneath this latter level would open the door to a deeper retracement within the broader uptrend structure.
(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.
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