June 5, 2025
New Delhi, India
Indian Rupee Recovers After Two-Day Decline; RBI Rate Decision and US Jobs Data in Focus
The Indian Rupee (INR) edged higher on Thursday, breaking a two-day losing streak as uncertainty around US economic policy and a softening US Dollar (USD) supported the local currency. The rebound comes amid concerns over former US President Donald Trump’s erratic tariff stance and a growing fiscal deficit, triggered by the House of Representatives’ recent approval of a sweeping tax cut and spending bill.
The resulting pressure on the Greenback allowed the INR to regain some ground. However, renewed dollar demand from foreign banks and oil companies continues to pose downside risks. Additionally, foreign equity outflows and the squaring of offshore non-deliverable forward (NDF) positions ahead of Friday’s Reserve Bank of India (RBI) monetary policy decision may further cap gains.
Markets are now focused on key upcoming events, including the RBI’s interest rate announcement and several crucial US economic indicators, notably the Balance of Trade and Initial Jobless Claims data due later today. On Friday, investors will turn to the much-anticipated US Nonfarm Payrolls (NFP) report, expected to show 130,000 new jobs in May, while the unemployment rate is projected to hold steady at 4.2%.
Indian Rupee Seen Underperforming in Asia
Despite Thursday’s recovery, a Reuters poll of FX strategists suggests the INR is likely to underperform other Asian currencies in the near term, gaining only modestly against a weakening US Dollar. The Rupee has shown limited appreciation in 2025, even as India remains the fastest-growing major economy.
India’s HSBC Composite PMI dropped to 59.3 in May from 61.2 in April, while the Services PMI fell to 58.8, missing both prior readings and expectations. Still, HSBC’s Chief India Economist Pranjul Bhandari highlighted that strong international demand continued to support services activity, with new export orders rising month-on-month.
In contrast, US economic indicators reflect growing signs of weakness. The ISM Services PMI fell to 49.9 in May, dipping below the 50 mark that separates growth from contraction. Additionally, US ADP private employment added just 37,000 jobs, significantly missing the 115,000 expected by analysts.
Minneapolis Fed President Neel Kashkari acknowledged the cooling labor market, stating the Fed must adopt a “wait-and-see” approach amid economic uncertainties.
Outlook
The near-term trajectory of the Rupee will largely depend on Friday’s RBI decision, with markets widely anticipating a third consecutive 25 basis points rate cut. Meanwhile, external cues from the US labor market and geopolitical developments are expected to keep forex markets volatile.
As the Dollar remains pressured by policy doubts and economic strain, the Rupee may find intermittent support, but structural challenges persist in the form of capital outflows, import demand, and global uncertainty.
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