USD/INR holds above 88.50 amid thin trading due to the Indian bank holiday

• USD/INR maintains its position as markets observe a bank holiday in India.
• The US Dollar could face challenges amid the ongoing US government shutdown.
• The Indian Rupee weakened amid persistent foreign fund outflows from the Indian equity market.

USD/INR moves little after registering mild gains in the previous session, trading around 88.70 during the Asian hours on Wednesday. The pair is likely to see limited movement amid thin trading as markets observe a bank holiday in India.

The USD/INR pair inched lower as the US Dollar (USD) held slight losses amid ongoing economic concerns, driven by the US government shutdown. The impasse has now entered its sixth week and is poised to become the longest federal funding lapse in US history after the Senate once again failed to pass a short-term funding bill. The most recent attempt to resolve the standoff, Republican-backed temporary legislation, was rejected by the Senate for the 14th time on Tuesday.

However, the USD/INR pair may gain ground as the Greenback may further advance due to the cautious sentiment surrounding the US Federal Reserve (Fed) policy stance for December. Fed Chair Jerome Powell stated during last week's post-meeting press conference that another rate cut in December remains uncertain. Powell also cautioned that policymakers might need to adopt a wait-and-see stance until the release of new official data resumes.

The Indian Rupee (INR) also came under pressure amid continued foreign fund outflows from the Indian equity market. Foreign Institutional Investors (FIIs) have been net sellers for the past four months, though the pace of selling moderated in October. Traders expect the Reserve Bank of India (RBI) to intervene in the currency market to support the Indian Rupee in the upcoming sessions.