USD/INR: Rupee Trades Below 86.50 Against U.S. Dollar, Struggles Amid Volatility

On January 23, 2025, the Indian rupee traded at 86.48 against the U.S. dollar, marking an intra-day high of 86.71 in a volatile trading session. The currency opened the day 11 paise weaker at 86.56 at the interbank foreign exchange market before sliding to its lowest point of the day at 86.71.

Dollar Index Edges Higher

The dollar index, which measures the U.S. dollar’s strength against a basket of six major currencies, showed a marginal increase of 0.02%, trading at 108.28 during the day.

This marginal uptick followed fluctuations over recent days driven by economic developments and policy discussions in the United States.

Role of RBI Interventions

Traders noted the Reserve Bank of India (RBI) likely conducted dollar-rupee buy/sell swaps, contributing to a decline in forward premiums. The 1-year dollar-rupee implied yield fell to 2.27%, its lowest level since July 2024.

These swaps are part of the RBI’s strategy to manage liquidity in the banking system without disrupting the cash flow significantly.

While dollar-selling interventions by the RBI remove rupee liquidity, this impact is balanced by using buy/sell swaps, where dollars are sold for a future settlement date rather than immediately in the spot market.

U.S. Trade Policy and Dollar Fluctuations

The U.S. dollar index saw further fluctuations as trade tariff discussions emerged from Washington. While trade tariffs received only a passing mention in U.S. President Donald Trump’s inaugural speech on Monday, he confirmed on Tuesday that his administration was considering imposing a 10% tariff on goods imported from China starting February 1. This announcement added to the volatility in global markets, including the currency space.

Crude Oil

West Texas Intermediate (WTI) crude continued its downward trend, dipping toward $75 per barrel, while Brent crude settled at $79 per barrel, extending losses that began last Thursday.

According to the American Petroleum Institute (API), U.S. crude inventories rose by 1 million barrels last week, with fuel stockpiles also surging. Typically, U.S. crude stockpiles see a drawdown toward the end of the calendar year due to tax-related reasons. Official government inventory data is expected later on Thursday.

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