May 12, 2025
New Delhi, India
USDINR
The Indian Rupee weakened in early Monday trade, pressured by rising geopolitical tensions between India and Pakistan, renewed strength in the US Dollar, and a spike in crude oil prices. The combination of these factors has weighed on investor sentiment, dragging the INR lower.
Tensions along the India-Pakistan border flared again despite a ceasefire agreement reached on Saturday between the Directors General of Military Operations (DGMOs) of both nations. India accused Pakistan of violating the newly agreed terms within hours of the deal, raising concerns over stability in the region.
India’s Foreign Secretary Vikram Misri stated that Indian forces have been instructed to respond firmly to any further violations across the Line of Control (LoC) and the international border. “An understanding was reached this evening between the DGMOs of India and Pakistan to halt the ongoing military action. However, in the last few hours, Pakistan has violated this understanding,” Misri said.
Top military officials from both nations are expected to meet later on Monday to discuss the next steps, but markets remain on edge. The political situation is adding to existing pressure on the INR from rising crude oil prices and global market movements.
Further complicating the picture, US President Donald Trump confirmed the ceasefire attempt on Saturday, stating it was necessary to prevent further “death and destruction” in the region. However, repeated violations could delay de-escalation and impact foreign investor confidence.
Meanwhile, on the global front, the US Dollar continues to find support amid optimism over US-China trade negotiations. Talks between both sides in Switzerland concluded with positive remarks. Chinese Vice Premier He Lifeng described the meetings as “an important first step” in restoring trade ties, while US Treasury Secretary Scott Bessent noted “substantial progress.”
Swap markets are now pricing in a 25 basis point rate cut by the US Federal Reserve in July, with expectations for two more cuts by year-end. The possibility of a softer US monetary policy has, for now, been offset by the recent Dollar strength and crude rally, both of which tend to weigh on the Indian currency.
Despite the headwinds, continued foreign portfolio investor (FPI) inflows into Indian equities and better-than-expected corporate earnings offer support to the Rupee. The Reserve Bank of India (RBI) is also expected to intervene in currency markets if sharp depreciation occurs, keeping downside risks in check.
Investors are closely watching India’s Consumer Price Index (CPI) data for April, due later Monday, which could influence the RBI’s future policy path. Additionally, Fed Governor Adriana Kugler is scheduled to speak, with the spotlight shifting to the US April CPI data on Tuesday.
While the Rupee remains under pressure, near-term moves will likely depend on geopolitical developments, macroeconomic data, and the RBI’s readiness to smooth volatility.
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