USD/INR: Rupee Trades above 86.50 After Fed Signals No Hurry To Cut Rates

On January 30, 2025, the Indian rupee traded at 86.58 to the U.S. dollar, reaching an intra-day high of 86.72. This movement came after the U.S. Federal Reserve expectedly kept interest rates unchanged. Federal Reserve Chair Jerome Powell stated that there would be no rush to cut rates again, influencing market sentiment.

The 1-month non-deliverable forward suggested that the rupee would open around 86.57-86.58 against the U.S. dollar, slightly weaker than Wednesday’s close of 86.54.

U.S. Dollar Index and Fed’s Decision

The dollar index climbed to a near one-week high following the Fed’s decision before paring its gains to trade flat at 107.8 during Asian trading hours. Powell emphasised that the Fed is monitoring potential policy changes by U.S. President Donald Trump, stating that officials are “waiting to see what policies are enacted” before evaluating their impact on inflation, employment, and overall economic activity.

Impact of Trump’s Trade Policies

Investors are closely watching whether Trump will follow through on his pledge to impose 25% tariffs on Mexico and Canada starting Saturday. Any such action could have significant economic and trade implications globally.

Foreign Portfolio Outflows and RBI’s Role

The Indian rupee continues to remain under pressure due to persistent foreign portfolio outflows. In January alone, foreign investors have withdrawn nearly $9 billion from local stocks and bonds. Despite this, traders believe that the Reserve Bank of India’s (RBI) market interventions should help contain excessive volatility in the rupee’s movement.

Oil Prices Edge Higher Amid Trade Uncertainty

Oil prices edged higher as investors awaited more clarity on the U.S. administration’s trade policy. Donald Trump’s pick for commerce secretary suggested that Canada and Mexico might be able to avoid the proposed tariffs, leading to some market optimism.

West Texas Intermediate (WTI) crude oil rose toward $73 per barrel, recovering slightly after a buildup in U.S. stockpiles on Wednesday had driven futures to their lowest close of the year. Meanwhile, Brent crude settled near $77 per barrel.

Conclusion

The Indian rupee’s movement continues to be influenced by global economic developments, including the Fed’s stance on interest rates, Trump’s trade policies, and foreign investment outflows. While the RBI’s interventions may help stabilise the currency, the broader impact of U.S. economic policies will remain a key factor for market participants in the coming days.

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