USD/INR: Rupee Continues to Trade Above 86.50, at Record Low Ahead of U.S. Inflation Data

On January 14, 2025, the Indian rupee weakened significantly, trading at 86.50 to the U.S. dollar and hitting an intra-day high of 86.65. The rupee’s decline stood out among Asian currencies, which also faced pressure but experienced milder losses. While the Thai baht, Philippine peso, and Malaysian ringgit dropped between 0.3% and 0.6%, the Chinese yuan remained relatively stable, even appreciating slightly.

The rupee’s sharp depreciation was driven by the strong performance of the US dollar. The dollar index, which measures the greenback against a basket of major currencies, climbed 0.43% on Friday. This rally followed robust US jobs data, which strengthened expectations that the Federal Reserve would maintain higher interest rates for an extended period, dampening hopes for any rate cuts in 2025.

Dollar Awaits Inflation Data, Trump Moves

The dollar’s trajectory in the coming weeks is expected to hinge on two major factors: the upcoming U.S. inflation data set to be released on Wednesday and the actions of Donald Trump after his inauguration on January 20.

The dollar has rallied strongly on Trump’s promises to impose high tariffs on the country’s trading partners, and its future performance will largely depend on how aggressively he follows through on these pledges.

Measured RBI Response Allows Speculators to Pressure Rupee

Unlike previous episodes of rupee depreciation, the Reserve Bank of India (RBI) took a measured approach to intervention. While the central bank was reportedly selling dollars, it avoided defending specific levels such as ₹86, ₹86.25, or ₹86.50, choosing instead to act in line with market dynamics. This restrained response enabled speculators to push the rupee lower, amplifying its losses.

The rupee’s fall also coincided with rising bond yields. The yield on India’s 10-year government bond rose from 6.8% to 6.84%, reflecting a broader trend in global markets. In the US, the 10-year Treasury yield increased by 7 basis points, and the 30-year yield surpassed 5%. Higher U.S. yields reduce the appeal of emerging market assets, prompting capital outflows and exerting additional pressure on currencies like the rupee.

Oil Prices Near 5-Month Highs 

Oil prices remain near five-month highs as supply concerns intensify, driven by aggressive U.S. sanctions and potential trade tariffs under the incoming Trump administration. West Texas Intermediate (WTI) crude hovered close to $79 a barrel after surging over 6% in the past two sessions, while Brent crude settled above $81.

The rally gained momentum on Friday after the U.S. imposed its toughest sanctions yet on Russia’s oil sector, targeting major exporters, insurance providers, and over 150 tankers, causing disruption in the global energy market. Simultaneously, 10 European nations are pushing for stricter curbs on Russian oil flows.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.