May 13, 2025
New Delhi, India
USDINR
The Indian Rupee fell on Tuesday, hurt by a stronger US Dollar and simmering geopolitical tensions. Progress in US-China trade negotiations has revived risk appetite globally, boosting the Greenback and putting pressure on emerging market currencies, including the INR.
Optimism surrounding the recent US-China trade deal lifted the US Dollar after both countries announced significant tariff rollbacks. US President Donald Trump agreed to reduce tariffs on Chinese imports from 145% to 30%, while China lowered duties on American goods to 10% from 125%. These measures, effective for the next 90 days, have raised hopes of a more stable trade environment.
The Rupee’s slide also comes amid renewed India-Pakistan tensions. On Monday, Prime Minister Narendra Modi declared that India would not succumb to “nuclear blackmail” and emphasized that operations against Pakistan have only been paused, not abandoned. His comments were seen as a warning to Islamabad, keeping geopolitical risks alive despite a temporary ceasefire holding overnight in Jammu and Kashmir and other border regions.
Despite these pressures, foreign portfolio investors (FPIs) have resumed equity purchases, which may offer some support to the local currency. Recent inflows signal investor confidence in India’s economic fundamentals and strong corporate earnings.
Swap markets now anticipate the US Federal Reserve will implement its first 25 basis point rate cut by September, with two additional cuts expected by year-end. While previous pricing reflected a potential cut as early as July, the shift to September suggests market reassessment amid changing macro dynamics.
Looking ahead, markets are bracing for the release of Consumer Price Index (CPI) data from both India and the US later on Tuesday. India’s inflation figures will offer insights into the Reserve Bank of India’s policy direction, while US CPI is expected to show a 2.4% year-on-year increase in headline inflation and 2.8% for core CPI.
The INR remains under pressure in early European trade, with the day’s focus firmly set on inflation readings and geopolitical developments. RBI intervention and sustained FPI interest could cushion further downside in the near term.
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