The Indian Rupee (INR) came under renewed pressure during Tuesday’s early European session, reflecting a broader strengthening in the US Dollar (USD). The surge in the greenback, coupled with rising crude oil prices, led to a sharp pullback in INR’s recent momentum. 

At the center of the move is a growing divergence between domestic fundamentals and global macroeconomic forces, driving renewed volatility in the USD/INR pair. This article from Vestronmix includes an expert-led breakdown of the topic.

INR Weakens as Oil Prices and USD Demand Rise

The USD/INR exchange rate spiked higher as global investors rotated back into the US Dollar amid soft economic data, higher safe-haven flows, and shifting expectations ahead of key macroeconomic releases. The Indian Rupee is particularly sensitive to crude oil prices given India’s status as a net importer of oil, and the latest uptick in global energy prices is intensifying the pressure on the INR.

West Texas Intermediate (WTI) and Brent crude benchmarks have both edged higher, propelled by concerns over OPEC+ production policy, Middle East tensions, and speculation of improved global demand in the second half of 2025. Rising energy costs translate directly into widening trade deficits for India, weakening investor sentiment toward the currency.

Adding to INR’s woes is the renewed bid in the US Dollar, which is drawing strength from a recalibration of interest rate expectations. 

The US Manufacturing PMI, released Monday, fell slightly to 48.5 in May, below consensus of 49.5, yet markets interpreted the softness as unlikely to derail the Federal Reserve’s higher-for-longer rate stance, especially ahead of the critical JOLTs Job Openings report later Tuesday and the US Nonfarm Payrolls (NFP) report due Friday.

RBI Policy and FX Reserve Strategy in Focus

The Reserve Bank of India (RBI) is scheduled to announce its monetary policy decision on Friday. Analysts broadly expect a 25 basis points (bps) rate cut, its third consecutive move, as the central bank attempts to stimulate domestic growth. However, the RBI remains caught in a delicate balancing act: supporting economic expansion while managing inflation expectations and maintaining rupee stability.

Barclays Bank Plc strategists believe the RBI is leaning toward a liquidity-supportive stance, while prioritizing foreign exchange reserve accumulation over defending the rupee in the open market. “The RBI is expected to be focused on replenishing its FX buffers while allowing its forwards book to run off,” they noted, implying limited direct intervention to halt INR depreciation.

Domestic Growth Offers a Silver Lining

Despite current pressures, India’s macroeconomic backdrop remains relatively robust. India’s GDP expanded by 7.4% year-on-year in Q1 2025, marking a strong acceleration from the previous quarter’s 6.2% and beating market forecasts of 6.7%. 

This performance reinforces India’s position as the world’s fastest-growing major economy, even as it moderates from the high of 9.2% recorded in FY 2023-24.

Continued momentum in domestic consumption, public investment, and services sector performance contributes to India’s growth trajectory. Nonetheless, a weakening currency could pose imported inflation risks, especially in fuel and commodity segments, which may ultimately limit the RBI’s scope for prolonged easing.

USD/INR Technical Outlook: Bearish Momentum Pauses

From a technical perspective, the USD/INR pair continues to exhibit a bearish bias despite short-term recovery attempts. The pair remains capped below the 100-day Exponential Moving Average (EMA), reinforcing the downward trend channel visible on the daily chart.

The Relative Strength Index (RSI) currently hovers around the midline, indicating neutral momentum but with scope for volatility. On the downside, immediate support lies in the 85.05–85.00 zone, which aligns with the May 27 low and a key psychological level. 

A break below this region could expose further declines toward 84.61, last seen on May 12, followed by 83.85 at the bottom of the trend channel.

In contrast, if USD/INR rebounds decisively, the resistance zone at 85.55–85.60, comprising the 100-day EMA and the upper trendline boundary, remains the key hurdle. A bullish breakout could open the path to a retest of 86.10, the high of May 22.

Outlook Ahead: Eyes on US Jobs Data and RBI Decision

Looking forward, markets are set for a data-heavy week, with the JOLTs Job Openings, US Nonfarm Payrolls, and the RBI interest rate decision forming the trifecta of catalysts likely to dictate USD/INR price action.

Should US labor data surprise to the upside, it could reinforce Fed hawkishness and add to USD strength, further pressuring the INR. Conversely, any dovish turn from the Fed or weaker jobs prints could offer INR a reprieve. Traders will also watch for the RBI’s guidance on liquidity, FX intervention, and its take on growth versus inflation trade-offs.

In sum, the near-term USD/INR trajectory hinges on a delicate interplay of monetary policy, oil dynamics, and capital flows. As the rupee battles external and internal headwinds, volatility in the pair is likely to persist, keeping traders on edge in the days ahead.