Rising US Yields Pressure Rupee as USD/INR Nears Record

Key Moments

INR Retreats as U.S. Yields Extend Their Climb

The Indian Rupee (INR) loses ground against the U.S. Dollar (USD) on Thursday, reversing part of the previous day’s upward move. Persistent selling interest in the Indian currency is emerging as U.S. Treasury yields push higher, driving the USD/INR pair up toward 96.10.

At the time of writing, the yield on the 10-year U.S. Treasury is hovering close to 5.31%, described as the highest level in roughly two decades. Elevated U.S. yields are reducing the attraction of risk-oriented assets, including the Indian Rupee, and are lending support to the Dollar.

Fed Rhetoric and Energy Concerns Fuel Treasury Yield Rally

U.S. government bond yields continue to advance as Federal Reserve (Fed) officials highlight ongoing inflation risks tied to energy supply disruptions. This messaging is reinforcing expectations for a prolonged period of tight monetary policy.

Fed official Neel Kashkari delivered what was described as a notably hawkish-leaning communication, with the FXS Speechtracker scoring his remarks at 7.1 compared with a historical average of 6.2. The comments stressed that inflation around 3% is still too elevated and that solid economic momentum may indicate policy is not as restrictive as assumed. The focus on a potentially higher and more sustained neutral rate, alongside references to one additional rate increase this year and another in 2027, is helping to sustain a narrative of extended restrictive policy that is broadly supportive of the Dollar, even as Kashkari expressed hope that inflation can be subdued with relatively modest policy adjustments.

The FXS Fed Sentiment Index edged down by 0.42 points to 143.28, signaling a slight softening in perceived hawkish tone despite the firm messaging. With the index holding well above the 100 neutral threshold, the Fed stance is still characterized as clearly hawkish. The marginal decline suggests that markets are tweaking expectations at the edges rather than significantly revaluing the policy outlook indicated by the FXS Speechtracker.

Fed officials also remain wary of potential energy supply shocks, linked to diminished expectations of progress on U.S.-Iran diplomacy following reports that President Donald Trump rejected claims from Axios about possible Iran sanctions relief.

U.S. Labor Data and PMI in Focus for Dollar Traders

The upcoming U.S. Nonfarm Payrolls (NFP) release for September, scheduled for Friday, is being viewed as the next major catalyst for the Dollar. Market participants are expected to scrutinize the data for clues on the Fed’s monetary policy path.

According to the CME FedWatch tool, there is currently a 62.4% probability that the Fed will keep interest rates unchanged at its policy meeting this month. The perceived likelihood of no change in rates in October has risen from 29% a week earlier.

Stronger-than-expected ADP Employment Change figures have contributed to a constructive tone ahead of the official labor report. Data released on Wednesday showed that the U.S. private sector added 90K jobs, surpassing the 70K consensus forecast and the August figure of 36K.

Later in the session, attention is set to turn to the U.S. ISM Manufacturing Purchasing Managers’ Index (PMI) for September. Market expectations point to a reading of 55.0, up from 54.6 in August.

USD/INR Technical Picture: Bulls Retain Control

On the daily chart, USD/INR is trading around 96.10 and is maintaining a constructive near-term outlook as it stays above the 20-day exponential moving average (EMA) at 95.74. This short-term trend gauge continues to act as support, while the Relative Strength Index (RSI) at 62.76 remains in positive territory without yet indicating overbought conditions. This setup suggests that upward momentum may persist as long as price action holds above underlying support.

On the downside, immediate technical support is identified at the 20-day EMA at 95.7263, where buying interest on dips could appear if the pair pulls back from current levels. On the upside, the all-time high near 97.00 stands out as the key resistance barrier.