INR Value Boost Amid Trade Tensions and Dollar Weakness

In the first week of March, the INR continues to show signs of strength after months of pressure. From a historical perspective, we revisit the period when the Indian Rupee started to recover against the US Dollar, with the USD/INR rate reaching lower levels than in previous months. This movement reflects complex market dynamics combining macroeconomic factors, geopolitical tensions, and international capital flows.

The Recovery of the Indian Rupee and the Weakening of the US Dollar

Toward the end of 2024 and the beginning of 2025, the INR showed a significant rebound after a series of downward pressures. During that period, the USD/INR rate fell to around 90.35, breaking a three-day losing streak. Simultaneously, the Dollar Index (DXY) experienced a notable decline, hitting a three-week low of 98.86.

This US dollar weakening was related to a shift in sentiment in global markets. Risk appetite returned, reducing the traditional appeal of the dollar as a safe haven. However, the INR’s path toward stability was far from straightforward. While the rupee initially gained ground, multiple uncertainty factors kept the outlook complicated.

Trade tensions between the US and India posed a significant obstacle. In January 2025, US President Donald Trump suggested further tariff increases on India if the country continued importing Russian oil. This geopolitical pressure affected capital flows: Foreign Institutional Investors (FIIs) continued reducing their exposure in the Indian stock market. In the first quarter of January 2025, total FII outflows amounted to 3,015.05 crore rupees, with some days showing smaller outflows below 40 crore rupees.

American Manufacturing Data Weighs on the Dollar

A key factor contributing to the dollar’s weakness was structural weakness in the US manufacturing sector. December 2024’s ISM Manufacturing PMI data surprised analysts negatively: the index fell to 47.9 from 48.2 in November, missing consensus estimates that expected a rebound to 48.3.

This deterioration was not limited to the main index. Sub-indices, including New Orders and Employment, also contracted, albeit at a more moderate pace. Persistent weakness in manufacturing raised concerns about the overall US economic outlook. Throughout 2025, the Federal Reserve responded with three interest rate cuts, bringing the range to 3.50%-3.75% to support a slowing labor market.

Global financial institutions revised their forecasts accordingly. UBS, for example, initially predicted further rate cuts in July and October 2025, shifting the timeline from previous expectations. At the same time, the Swiss bank estimated increases in the core Consumer Price Index (CPI) of 44 basis points in December, 50 bps in January, and 30 bps in February, creating a scenario of moderate but persistent inflation.

Technical Outlook on USD/INR: Key Supports and Resistances

From a technical analysis perspective, the USD/INR pattern showed a strong support structure. The daily chart indicated the rate oscillating around 90.3765, consistently staying above the 20-day exponential moving average (EMA) at 90.2305. This level served as a dynamic support, reaffirming the overall bullish trend despite tactical corrections.

The 14-day Relative Strength Index (RSI) was at 55.20, indicating balanced momentum without overbought conditions. This setup kept a neutral-positive short-term outlook for the INR.

Technical scenarios suggested that if USD/INR maintained consistent closes above the 20-day EMA, the pair could move toward the all-time high of 91.55. Conversely, a daily close below this moving average could reverse market sentiment, potentially leading to further declines toward the December low of 89.50.

The subsequent evolution of USD/INR confirmed the importance of these technical levels in determining the currency pair’s volatility during the following year.

(This analysis was prepared with the assistance of data processing tools.)