Rupee Under Pressure on Rising US Yields, Risks

Key Moments

Rupee Softens as U.S. Dollar and Yields Firm Up

The Indian Rupee (INR) is weakening against the U.S. Dollar (USD) on Thursday, with the USD/INR pair trading close to 95.60. The domestic currency is struggling as higher U.S. Treasury yields and renewed demand for the Greenback challenge risk-oriented assets.

During the Asian session, 10-year U.S. Treasury yields are up 1.8% around 4.71%, marking their highest level in 18 months. The move higher in U.S. bond yields is reducing the relative appeal of higher-risk currencies, including the Rupee.

The U.S. Dollar is also seeing fresh buying interest early Thursday after declining sharply following the previous day’s Federal Reserve policy decision. At press time, the U.S. Dollar Index (DXY) – which tracks the Dollar against six major peers – is 0.12% higher, trading near 100.93.

Fed Holds Rates, Markets Focus on Inflation Risks

In its monetary policy decision on Wednesday, the Federal Reserve kept its benchmark interest rate unchanged in a range of 3.50%-3.75% for the fifth straight meeting. The outcome matched expectations, coming at a time when rising oil prices amid escalating conflicts in the Middle East have once again unsettled inflation forecasts.

The meeting took place under visible political scrutiny. U.S. President Donald Trump has repeatedly criticized the central bank for not lowering interest rates. Ahead of the decision, Trump said Fed Chairman Kevin Warsh wanted to cut rates, and he argued that a recent inflation report was favorable, costs were falling quickly, and prices should move sharply lower once the Gulf War ends.

In both the policy statement and the subsequent press conference, Fed Chair Warsh emphasized the priority of reducing inflation and signaled that the central bank is prepared to act if needed.

Expectations that the Fed may still need to raise interest rates at some point this year to secure price stability are driving U.S. bond yields higher.

“We think the ⁠market is ultimately telling us (and Warsh) that talk is cheap with the combination of these moves, and that it is not ​enough to just say and proclaim that price stability is ​paramount,” MUFG ⁠Bank said in a note, Reuters reported. They added, “In other words, the Fed has to eventually walk the talk on inflation under this new regime.”

Middle East Tensions and Oil Market Constraints

Oil prices are lower in early trading on Thursday, even as U.S.-Iran military hostilities persist. Earlier, Iranian media reported that the U.S. military struck the south-western city of Abadan and Qeshm Island.

At press time, the MCX Crude Oil contract expiring on August 19 is down 1.1%, trading around Rs. 8,030.

Currencies from oil-importing economies such as India typically struggle when crude prices are elevated, as higher energy costs weigh on trade balances and growth prospects.

Market participants still see a strong likelihood of further oil price gains amid concerns that the Middle East conflict could compress global energy supplies.

According to TD Securities, the renewed escalation in regional tensions is reinforcing supply-side risks in energy markets. Strategists there note that “the return of Iranian-US strikes after a multi-day pause, along with continued Houthi risks for Saudi energy infrastructure, are keeping flows in both the Strait of Hormuz and Bab el-Mandeb heavily constrained,” highlighting the persistent fragility of essential crude and product shipping channels.

USD/INR Technical Picture: Bias Soft but Supported Above 95.00

At the time of writing, USD/INR is trading modestly higher around 95.61, but the pair retains a slightly bearish short-term tone while it remains below the 20-day exponential moving average (EMA) at 95.86. The recent pullback from highs has turned this EMA into immediate resistance, signaling waning upward momentum.

The Relative Strength Index (RSI) stands at 47.76, just under the neutral 50 mark, pointing to a lack of decisive trend and supporting a consolidative to mildly soft bias as long as price action stays capped beneath the short-term EMA.

On the upside, the first resistance is the 20-day EMA at 95.86. A sustained move above that level would be required to alleviate the current bearish bias and reopen the way toward the recent peak at 97.10. On the downside, key support is identified at 95.00.

Fed Interest Rate Decision – Latest Data

The Federal Reserve (Fed) sets U.S. interest rates at eight pre-scheduled meetings each year as part of its dual mandate to keep inflation at 2% and maintain full employment. Its primary tool is the policy rate, which influences the rates at which it lends to banks and the rates banks charge each other.

Higher policy rates typically support the U.S. Dollar by attracting foreign capital flows, while lower rates tend to pressure the currency as investors seek higher yields elsewhere. When the Fed leaves rates unchanged, markets focus on the tone of the Federal Open Market Committee (FOMC) communication – whether it is hawkish, signaling the possibility of higher rates in the future, or dovish, indicating scope for cuts.