The Indian Rupee (INR) continued its downward trajectory on Friday, marking a second consecutive session near its record lows. The currency’s weakness is largely attributed to the strength of the US Dollar (USD), which has gained traction due to recent tariff threats from former President Donald Trump’s trade adviser.
Asian currencies, including the INR, are under pressure, influenced by a weaker offshore Chinese Yuan (CNH). Remarks from a senior trade adviser to Trump, warning China about potential currency manipulation, have further contributed to the yuan’s decline, according to Reuters.
The INR’s challenges are compounded by the recent appointment of Sanjay Malhotra as the new Reserve Bank of India (RBI) Governor. His appointment has prompted speculation in the markets about potential interest rate cuts. In addition, India’s retail inflation eased to 5.48% in November from October’s 6.21%, raising expectations for an RBI rate reduction during the February policy review.
Despite these pressures, the RBI’s foreign exchange interventions, such as liquidity management and USD sales, are expected to cap the rupee’s decline.
The Indian currency’s weakness is also linked to ongoing foreign fund outflows. On December 12, Foreign Institutional Investors (FIIs) recorded net sales of ₹3,560 crore in Indian equities, while Domestic Institutional Investors (DIIs) made net purchases of ₹2,646 crore. As Indian markets opened lower on Friday, following a decline in US markets, caution prevailed among investors, particularly with the Federal Reserve’s upcoming Federal Open Market Committee (FOMC) meeting.
US economic data continued to support a strong USD, with November’s Producer Price Index (PPI) rising by 0.4%, exceeding expectations. The Consumer Price Index (CPI) also climbed to 2.7% YoY, while core CPI, excluding volatile food and energy prices, increased by 3.3% YoY.
Looking ahead, S&P Global Ratings forecasts Indian economic growth at 6.8% for FY25 and 6.9% for FY26, driven by robust urban consumption, steady service sector expansion, and ongoing infrastructure investments.
From a technical standpoint, the USD/INR pair continues to trade near historic highs, with the pair hovering around 84.80 on Friday. Technical indicators suggest a bullish trend, with the possibility of surpassing the all-time high of 84.88 reached on December 12. A breakout above this level could drive the pair to test the upper boundary of its ascending channel at 85.10, with initial support seen at 84.73.
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