- USD/INR falls below 85.50 at open, while the US Dollar steadies after the US and China reach a framework on a trade deal.
- The US inflation is expected to have grown at a faster pace in May.
- Higher foreign inflows and a likely decline in oil prices have strengthened the Indian Rupee.
The Indian Rupee (INR) posts a fresh weekly high near 85.43 against the US Dollar (USD) during European trading hours on Wednesday. The US Dollar trades calmly after the White House signaled a positive outcome from the two-day meeting between trade negotiators from the United States and China in London. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, ticks up to near 99.15.
US Secretary of Commerce Howard Lutnick told reporters that both nations reached a “framework” to implement the trade deal made in Geneva in May, if approved by President Donald Trump. Lutnick expressed confidence that China would curb non-tariff barriers on the export of “rare earth and magnets”, and Washington would also roll back export restrictions on sophisticated chips.
Meanwhile, the Chinese ministry has also expressed a positive outcome from trade talks with Washington and stated that the agreement will now be forwarded to President Xi Jinping for approval.
The US Dollar trades steadily after the US-China trade agreement, which was expected to perform strongly on de-escalation in trade tensions between the two nations. Analysts at National Australia Bank stated that the “devil is going to be in the details and importantly whether this can help to reestablish trust between President Xi and President Trump, which has clearly been broken since the Geneva Agreement was published”.
On the legislative front, the US Federal Appeals court has stated that tariffs imposed by Donald Trump relating to border negligence and those announced on so-called “Liberation Day” on April 2 will remain in effect until they get proven whether they are permissible under the emergency act or not. The next argument regarding the sustainability of the above-mentioned tariffs will take place on July 31.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | 0.24% | 0.15% | 0.03% | 0.12% | 0.39% | 0.06% | |
| EUR | -0.11% | 0.13% | 0.03% | -0.10% | 0.00% | 0.23% | -0.06% | |
| GBP | -0.24% | -0.13% | -0.10% | -0.19% | -0.11% | 0.11% | -0.20% | |
| JPY | -0.15% | -0.03% | 0.10% | -0.21% | -0.02% | 0.22% | -0.12% | |
| CAD | -0.03% | 0.10% | 0.19% | 0.21% | 0.12% | 0.33% | -0.01% | |
| AUD | -0.12% | -0.00% | 0.11% | 0.02% | -0.12% | 0.22% | -0.08% | |
| NZD | -0.39% | -0.23% | -0.11% | -0.22% | -0.33% | -0.22% | -0.31% | |
| CHF | -0.06% | 0.06% | 0.20% | 0.12% | 0.00% | 0.08% | 0.31% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Indian Rupee gains on foreign inflows, hopes of Oil price falling in the future
- The Indian Rupee extends its winning streak for the fifth straight trading day on Wednesday against the US Dollar ahead of the US Consumer Price Index (CPI) data for May, which will be published at 12:30 GMT.
- The US CPI report is expected to show that the headline inflation rose at a faster pace of 2.5% year-on-year, compared to a 2.3% growth seen in April. In the same period, the core CPI – which excludes volatile food and energy prices – accelerated to 2.9% from the prior reading of 2.8%. On month, the headline and the core CPI rose by 0.2% and 0.3% respectively.
- The scenario of high inflation growth would limit Federal Reserve (Fed) policymakers from lowering interest rates. However, soft inflation figures are unlikely to prompt officials to endorse early interest rate cuts, assuming they are more focused on stabilizing de-anchored consumer inflation expectations, fuelled by the implementation of new economic policies by US President Trump.
- According to the CME FedWatch tool, the Fed will not reduce interest rates in the June and July policy meetings.
- In the Asian region, strong foreign inflows and a likely decline in the Oil price has strengthened the Indian Rupee. On Tuesday, the data from Indian exchanges showed that Foreign Institutional Investors (FIIs) were net buyers, pumping Rs 2,301.87 crore into equity markets.
- Meanwhile, the US Energy Information Administration (EIA) cites demand concerns and rising output as factors that could lead to a decline in the international benchmark Brent crude to $61/bbl by the end of 2025. Lower Oil prices bode well for the INR, given that India is one of the world’s leading importers.
- On the economic front, investors await the release of the Indian CPI data for May, scheduled for Thursday. Inflationary pressures are expected to have risen by 3% year-on-year, slower than the 3.16% growth seen in April.
- Signs of cooling price pressures would prompt market expectations that the Reserve Bank of India (RBI) could reduce interest rates again. In last week’s policy meeting, the RBI unexpectedly slashed the Repo Rate by 50 basis points (bps) to 5.5% and guided little room for further monetary policy expansion.
Technical Analysis: USD/INR strives to stay above 20-day EMA
The USD/INR pair refreshes the weekly low near 85.47 during Asian trading hours on Wednesday. The outlook of the pair is uncertain as it struggles to hold the 20-day Exponential Moving Average (EMA), which trades around 85.49.
The 14-day Relative Strength Index (RSI) hovers inside the 40.00-60.00 range, indicating a sideways trend.
Looking down, the June 3 low of 85.30 is a key support level for the major. A downside break below the same could expose it to the May 26 low of 84.78. On the upside, the pair could revisit an over 11-week high around 86.70 after breaking above the May 22 high of 86.10.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
