USD/INR surges as India-Pakistan conflict takes an ugly turn

• USD/INR lurched to one of its biggest single-day moves in recent history.
• Tensions are rising rapidly between India and Pakistan as military action spins up.
• The two regions have been caught in multiple conflicts over the Kashmir region over the years.

USD/INR surged to fresh highs on Thursday, bolstered by a fresh pummeling of the Indian Rupee (INR). India and Pakistan are spooling up a direct military conflict as the two countries continue to lay competing claims over the Kashmir region. A recent attack on civilians in India-controlled Kashmir last month has sparked a harsh response, despite repeated denials from Pakistan that the attack was sponsored or supported by the Pakistan government.

India and Pakistan each control sections of Kashmir, but both sides have laid full claim over the entirety of the region, and have fought at least three direct wars over the territory in the past. The latest uptick in military tensions is beginning to spread geopolitical tensions across the wider region. Both countries are nuclear-capable powers, and each country has launched escalating attacks in the latest conflict.

Geopolitical tensions on the rise amid escalating military strikes

Pakistan noted that India's latest counter-attack hit several densely-populated areas within neighboring Punjab, and Pakistan has vowed to become "more assertive" in responding to Indian-led military strikes. The Indian Rupee is poised to shed 1.5% in a single day of trading as escalating wartime tensions begin to weigh on the region. The Sensex Index, a market-weighted stock index of 30 well-established equities listed on the Bombay Stock Exchange, tumbled over 400 points early Thursday, with losses concentrated in bank stocks, automotive shares, and fast-moving consumer goods (FMCG) equities.

USD/INR technical forecast

Despite steep intraday losses weighing on the Indian Rupee, USD/INR is still trading into familiar near-term chart territory. The pair is on pace for its largest single-day gain since late 2019 as the Greenback gains ground on the Rupee, and a sharp reversal of recent bearish momentum has pushed the pair back above its 200-day Exponential Moving Average (EMA) near 85.25.

USD/INR has climbed nearly 1.5% on Thursday, tapping a multi-week high north of 86.00.

USD/INR daily chart