February 11, 2025
New Delhi, India
USDINR
The Indian Rupee (INR) edged higher in Tuesday’s early European session, posting its biggest single-day jump since November 2022 after touching a record low in the previous session. Strong intervention from the Reserve Bank of India (RBI), along with US Dollar (USD) selling by exporters and profit-booking by speculators, helped support the currency.
Despite the recovery, concerns over US trade tariffs, foreign portfolio outflows, and slowing economic growth continue to weigh on the INR. Investors are now focused on Federal Reserve (Fed) Chair Jerome Powell’s semi-annual testimony later on Tuesday, which could impact global currency markets.
RBI Intervention and Economic Concerns
The RBI’s frequent interventions have significantly depleted India’s foreign exchange reserves, which are now hovering near an 11-month low. Meanwhile, India’s GDP is projected to expand by just 6.4% in FY24, marking its weakest pace since the pandemic.
According to Nomura, risks to the INR remain tilted toward further weakness in the coming months, despite the possibility of a broad USD decline. Analysts suggest that RBI’s FX purchases could mitigate INR’s downside risks.
US Trade Policy and Tariff Impact
- Trump’s Tariff Expansion: On Monday, US President Donald Trump extended steel and aluminum tariffs to cover all imports, reversing previous deals with the EU, UK, and Japan.
- India’s Tariff Strategy: In response, India is considering cutting tariffs across multiple sectors, including electronics, medical equipment, and chemicals, to encourage US exports while boosting domestic manufacturing.
- Energy Imports: India also plans to increase energy product imports from the US, with purchases surpassing $11 billion in the first 11 months of 2024, as part of efforts to balance trade relations.
Market Outlook
With Fed Chair Powell’s testimony on the horizon, traders remain cautious about the USD/INR trajectory. Further US tariff actions and RBI’s policy stance will be key factors in determining the rupee’s movement in the coming days.
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