The Indian rupee has shown strength this week, gaining momentum as weak US economic data weighed on the dollar. However, a drop in forward premiums following the Reserve Bank of India’s (RBI) recent liquidity measures suggests that market dynamics remain fluid.
USD/INR spot traded down 0.12% at 86.93 at 3:10 PM against the previous close of 87.03 yesterday. The pair has dropped 0.5% so far this week.
The rupee closed at 86.95 on Wednesday, marking a 0.3% rise—its biggest single-day gain since February 11. This appreciation came as the dollar index dropped to 104.1, its lowest level since November 2024, reflecting concerns over slowing economic activity in the United States.
US economic data has raised red flags about a potential slowdown, prompting expectations that the Federal Reserve may adopt a more dovish stance on interest rates, as per news reports.
As a result, the dollar weakened against major global currencies, providing a boost to the Indian rupee.
Despite the rupee’s gains, forward premiums—a key indicator of future currency movements—fell to 2.02% on Thursday from 2.17% a day earlier. This decline followed the RBI’s announcement of new liquidity-boosting measures, including a dollar-rupee buy-sell swap aimed at supporting domestic liquidity.
The move is expected to stoke demand for dollars in the short term, creating potential fluctuations in the USD/INR exchange rate.
Looking ahead, traders will be closely watching the US non-farm payroll data, set to be released on Friday after market hours. This report will provide key insights into the US labor market and could influence the Federal Reserve’s future monetary policy decisions.
If the data points to further economic weakness, the dollar may continue to face pressure, potentially benefiting the rupee. However, any signs of resilience in the US job market could lead to a reversal in the rupee’s recent gains.
The rupee has gained ground this week, supported by a weaker dollar. However, with RBI’s liquidity measures influencing forward premiums and the upcoming US jobs data set to provide fresh market cues, volatility in the USD/INR pair remains a possibility. Traders and investors should stay alert to further developments in the global and domestic economic landscape.
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.
Published on: Mar 7, 2025, 4:24 PM IST
Neha Dubey
Neha Dubey is a Content Analyst with 3 years of experience in financial journalism, having written for a leading newswire agency and multiple newspapers. At Angel One, she creates daily content on finance and the economy. Neha holds a degree in Economics and a Master’s in Journalism.
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