USD/INR faces pressure ahead of Trump-Putin meet

• The Indian Rupee trades higher against the US Dollar amid intensifying Fed interest rate cut expectations.
• US Treasury Secretary Bessent anticipates a 50-bps interest rate cut by the Fed in September.
• Investors await India-US producer inflation data for July, Trump-Putin meet.

The Indian Rupee (INR) extends its upside slightly to near 87.55 at open against the US Dollar (USD) on Thursday. The USD/INR falls further as the US Dollar has been battered by intensifying expectations that the Federal Reserve (Fed) will resume its monetary expansion cycle in the September policy meeting, which it paused after interest rate cuts in December 2024.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades cautiously near an over two-week low of around 97.60.

According to the CME FedWatch tool, traders have almost fully priced in a 25 basis points (bps) interest rate reduction in September that will push borrowing rates lower to 4.00-4.25%. Fed dovish expectations swelled after the United States (US) Consumer Price Index (CPI) report for July showed that the headline inflation grew at a moderate pace of 0.2% on month, as expected, softer than 0.3% in June. The CPI report diminished investors' fears of a continuous flow of the tariff impact into prices.

Meanwhile, market experts are mixed about the Fed reducing interest rates in September. Investment banking firm Goldman Sachs said in a research note that it expects the Fed to deliver three 25-bps interest rate cuts this year and two more in 2026. On the contrary, analysts at Commonwealth Bank of Australia said, "There will be another CPI and payrolls report ahead of the September meeting that can make or break the case for a rate cut."

On Wednesday, US Treasury Secretary Scott Bessent said in an interview at Bloomberg TV that the Fed could deliver a larger-than-usual reduction in interest rates by 50bps next month, citing weak payrolls data in the last three months. He further added that there is a need to bring interest rates down by 150-175 bps. "Rates are too constrictive. We should probably be 150 to 175 basis points lower," Bessent said.

Daily digest market movers: Indian Rupee edges higher against US Dollar

• The Indian Rupee ticks up against the US Dollar as the latter faces selling pressure. While the outlook of the Indian currency is also uncertain, with investors awaiting the meeting between US President Donald Trump and Russian leader Vladimir Putin, which is scheduled for Friday in Alaska.
• US President Trump has called Russian leader Putin to discuss ending the war in Ukraine. On Wednesday, Trump threatened "severe consequences" if Putin refuses a truce in Ukraine.
• Trump-Putin meeting carries significant importance for the Indian Rupee outlook, given that the US has increased tariffs on imports from New Delhi to 50% for buying Oil from Russia. US Treasury Secretary Bessent has also threatened to increase tariffs on India further if discussions with Russia don't go well. "We put secondary tariffs on the Indians for buying Russian oil. And I could see if things don't go well, then sanctions or secondary tariffs could go up," Bessent said at Bloomberg TV.
• Meanwhile, the continuous outflow of foreign funds from Indian equity markets is also maintaining uncertainty around the Indian Rupee's outlook. On Wednesday, Foreign Institutional Investors (FIIs) sold Rs, 3,644.43 crores worth of shares in Indian markets. So far in August, FIIs have pared stake worth Rs. 22,264.75 crores in Indian equities, and remained buyers only on one trading day. Theoretically, currencies from economies that witness a significant outflow of foreign funds underperform their peers.
• Going forward, the Indian currency is expected to remain on the sidelines as equity markets in the Asian nation will remain closed on Friday on account of Independence Day.
• In Thursday's session, investors will focus on the producer inflation data of July from both India and the US. India's Wholesale Price Index (WPI) inflation is estimated to have deflated at a faster pace of 0.3% on year, against 0.13% in June. Meanwhile, the US Producer Price Index (PPI) is expected to have grown at a faster pace on month as well as on annual basis.

Technical Analysis: USD/INR holds 20-day EMA

USD/INR trades close to its weekly low of around 87.55 at open on Thursday. However, the near-term trend of the pair remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around 87.30.

The 14-day Relative Strength Index (RSI) falls to near 60.00. A fresh bullish momentum could emerge if the RSI holds above that level.

Looking down, the 20-day EMA will act as key support for the major. On the upside, the August 5 high around 88.25 will be a critical hurdle for the pair.