USD/INR opens higher amid trade tensions between the U.S. and India, Indian CPI data in focus

SourceFxstreet

Sep 12, 2025 04:56

• The Indian Rupee opened weak against the US Dollar at around 88.50 ahead of India's CPI data for August.
• U.S. Commerce Secretary Lutnick stated that a trade agreement with India would be likely if it stops buying Russian oil.
• U.S. initial jobless claims for the week ending September 5 reached their highest level in four years at 263K.

The Indian Rupee starts off weak against the US Dollar (USD) this Friday. The USD/INR pair jumps near 88.50, close to the historic high of 88.60 recorded on Thursday, as trade tensions between the United States and India persist, although Washington and New Delhi have confirmed that negotiations continue in search of a swift agreement.

Since the announcement of the 90-day grace period by the U.S. for its trading partners to finalize agreements before imposing reciprocal tariffs, Washington mentioned that India could have been the first country with which it would have struck a deal. However, the agreement was postponed due to the war tensions between India and Pakistan. Now India faces the highest U.S. tariffs for buying oil from Russia.

Secretary of Commerce Howard Lutnick's statements in an interview with CNBC on Thursday indicated that Washington is willing to negotiate with India if it stops buying Russian oil. “We will address the issue with India when it stops buying Russian oil,” Lutnick said, according to Reuters.

In addition, a report from the Financial Times indicates that the U.S. will pressure G7 countries to impose higher tariffs on India and China for purchasing Russian oil.

In response, Foreign Institutional Investors (FIIs) continue to reduce their participation in the Indian stock markets. On Thursday, FIIs sold shares worth Rs. 3,472.37 crores from the cash segment.

On the domestic front, investors are awaiting the Consumer Price Index data (CPI) for August, which will be released at 10:30 GMT. Inflationary pressures in the Indian economy are expected to have grown at an annual rate of 2.1%, higher than the previous reading of 1.55%.

Daily Summary: High U.S. inflation and weak labor demand suggest stagflation risks

The bullish movement of USD/INR is also driven by stable performance of the US dollar. The Dollar Index (DXY) rises by 0.15% to near 97.65 after facing strong selling pressure on Thursday.

The dollar fell after the Labor Department reported a sharp increase in unemployment claims. Initial claims for the week ending September 5th reached 263K, the highest reading in four years. Economists had expected 235K, nearly in line with the previous reading of 236K.

The weakening of the U.S. labor market has strengthened speculation that the Federal Reserve will cut interest rates at its meeting next week. According to the CME FedWatch tool, traders see a 7.5% chance of a 50 basis point cut, while the remainder points to a standard reduction of 25 basis points.

Meanwhile, inflationary pressures in the U.S. economy have accelerated. The overall inflation measured by the CPI rose at an annual rate of 2.9% in August, faster than the previous reading of 2.7%. Monthly, the CPI grew at a faster rate of 0.4% compared to estimates of 0.3%.

The rise in inflationary pressures and the weakening of employment growth have created the risk of stagflation in the U.S. economy, a scenario that would force Fed officials to maintain a delicate balance at the monetary policy meeting.

In Friday's session, investors will focus on the preliminary Michigan consumer sentiment index for September, which will be released at 14:00 GMT.

Technical Analysis: USD/INR rises near 88.50

The USD/INR pair rises to around 88.50 at the opening on Friday. The short-term trend of the pair remains bullish as it stays above the 20-day Exponential Moving Average (EMA), which is trading near 88.00.

The downward movement in the 14-day Relative Strength Index (RSI) is bouncing off 60.00, suggesting that a new bullish momentum has emerged.

Looking down, the 20-day EMA will act as a key support. On the bullish side, the round figure of 89.00 would be the key hurdle for the pair.

Frequently Asked Questions about the Indian Rupee

What are the key factors driving the Indian Rupee?

The Indian Rupee is one of the currencies most sensitive to external factors. The price of crude oil (the country depends heavily on imported oil), the value of the US dollar and the level of foreign investment are influential. The direct intervention of the Reserve Bank of India (RBI) in foreign exchange markets and the level of interest rates are also important factors.

How do the decisions of the Reserve Bank of India impact the Rupee?

The RBI actively intervenes in the foreign exchange markets to maintain a stable exchange rate. Additionally, it attempts to keep the inflation rate at its target of 4% by adjusting interest rates. Higher rates generally strengthen the Rupee due to the role of the “carry trade”.

What macroeconomic factors influence the value of the Indian Rupee?

Macroeconomic factors include inflation, interest rates, economic growth rate (GDP), trade balance, and foreign investment flows. A higher growth rate can generate more foreign investment, increasing the demand for Rupee.

How does inflation affect the Indian Rupee?

Higher inflation is generally negative for the currency as it reflects devaluation. Inflation also increases the cost of exports. At the same time, higher inflation often leads the RBI to raise interest rates, which can be positive for the Rupee due to increased demand from international investors.

Notice: For informational purposes only. Past performance is not indicative of future results.