May 19, 2025
New Delhi, India
The Indian Rupee (INR) continued to weaken against the US Dollar (USD) on Monday, marking its sixth consecutive day of losses. Persistent demand for the greenback from importers and ongoing foreign fund outflows kept the domestic currency under pressure.
Mixed Forces at Play
While the bearish momentum continues, the upside for USD/INR may be capped following a fresh downgrade of the US credit rating. Moody’s Investors Service lowered the United States’ rating by one notch—from Aaa to Aa1—citing concerns over rising federal debt and increasing interest obligations. The move echoes earlier downgrades by Fitch in 2023 and S&P in 2011.
Moody’s now expects US federal debt to balloon to 134% of GDP by 2035, up from 98% in 2023. The US deficit is also projected to widen close to 9% of GDP due to higher entitlement spending, reduced tax revenue, and mounting debt-servicing costs.
Oil Price Decline Lends INR Some Relief
Despite the Rupee’s weakness, falling global crude oil prices offered some cushion. Reports of progress in US-Iran nuclear talks weighed on oil prices. Iran’s president reaffirmed commitment to negotiations while defending nuclear rights, raising hopes of renewed crude supply. As India is the world’s third-largest oil importer, lower oil prices typically ease its import bill and support the currency.
Dollar Index, Economic Data and Rate Cut Hopes
The US Dollar Index (DXY) traded lower near 100.80, reflecting broad-based pressure on the greenback. This weakness was compounded by disappointing US economic data. The University of Michigan’s Consumer Sentiment Index dropped to 50.8 in May—the lowest since June 2022 and the fifth straight monthly decline—defying analyst expectations of a rebound to 53.4.
The weak data has amplified bets on a potential rate cut by the US Federal Reserve later this year, putting further pressure on the Dollar.
Trade Optimism and Political Developments
However, the USD may draw temporary support from easing global trade tensions. A preliminary deal between the US and China reportedly includes sharp tariff reductions, with Washington slashing duties on Chinese goods from 145% to 30%, and Beijing trimming tariffs on US imports from 125% to 10%.
Market sentiment also improved amid optimism around a potential US–Iran deal and upcoming discussions between US President Donald Trump and Russian President Vladimir Putin on the Ukraine conflict.
Indian Markets and Trade Dialogue
On the domestic front, Indian equity markets saw a strong rebound last week. The BSE Sensex rose 3.6%, supported by easing geopolitical tensions with Pakistan, optimism over India–US trade ties, and expectations of interest rate cuts by the Reserve Bank of India.
Meanwhile, a high-level Indian delegation led by Commerce Minister Piyush Goyal is currently in the US to meet with USTR Jamieson Greer and Commerce Secretary Howard Lutnick. Talks are expected to advance discussions on a proposed India–US bilateral trade agreement.
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