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USD/INR gains momentum after Trump’s latest tariffs threat

  • The Indian Rupee remains under selling pressure in Tuesday’s early European session. 
  • Escalating global trade tensions weigh on the INR. 
  • Investors brace for the RBI interest rate decision on Wednesday. 

The Indian Rupee (INR) declines on Tuesday, erasing all its gains of 2025. Fears over global trade tensions escalated after China implemented retaliatory tariffs on US goods. The heightened uncertainty has triggered risk-off sentiment, leading to outflows from emerging markets, including India. This, in turn, exerts some selling pressure on the Indian currency. Additionally, the Reserve Bank of India (RBI) could tolerate a sharper depreciation of the INR if China lets the Chinese Yuan weaken to cushion the impact of US tariffs, multiple sources aware of the central bank’s thinking said.

On the other hand, a broadly weaker US Dollar (USD) due to the concerns over the potential recession in the United States might help limit the local currency’s losses. The RBI interest rate decision will be in the spotlight later on Friday. The Indian central bank is expected to cut key interest rates by up to 25 basis points (bps) on Wednesday, with lower inflation supporting an accommodative monetary policy stance. The attention will shift to the US Consumer Price Index (CPI) inflation report for March, which is due later on Thursday.

Indian Rupee remains vulnerable amid Trump’s tariff fallout

  • Pranjul Bhandari, HSBC’s Chief India Economist, expects consecutive interest rate cuts from the RBI at the central bank’s April, June and August meetings.
  • Despite the global economic uncertainty and tariff policy, Indian government officials remain optimistic about the country’s growth trajectory. They project a growth rate of 6.3% to 6.8% for the fiscal year 2025-26.
  • “Bond yields slipped further after the RBI surprised by announcing another OMO for April, signaling a strong preference for surplus liquidity to aid transmission. We look for a 25bp cut in the repo rate to 6% and a change in stance to accommodative at the April meeting, tapping into the wide real rate cushion,” said Radhika Rao, executive director and senior economist at DBS Bank.
  • The markets have priced in a nearly 65% chance of a Fed cut in May, and futures now point to about 100 basis points  (bps) worth of rate reductions by December, according to the CME FedWatch tool. 
  • Chicago Fed President Austan Goolsbee said late Monday that significant tariff retaliation could boost inflation, adding that a global trade war eruption may lead to a consumer behavior shift.
  • Fed Governor Adriana Kugler noted that some of the recent rise in goods and market-services inflation may be “anticipatory” of the effect of the Trump administration’s tariffs. Kugler further stated that the Fed’s focus should be on keeping inflation in check, per Reuters. 

USD/INR bulls seek to extend upside correction above the 100-day EMA 

The Indian Rupee remains weak on the day. According to the daily chart, the USD/INR pair is set to resume its uptrend, with the price crossing above the key 100-day Exponential Moving Average (EMA). The pair could resume its upside journey if the price decisively closes above this level. 

The first upside barrier for USD/INR emerges at 85.88, the 100-day EMA. Any follow-through buying above the mentioned level could see a rally to 86.48, the low of February 21, en route to 87.00, the round mark.

The initial support level for the pair is seen at 85.20, the low of April 3. Sustained bearish pressure below this level could keep pulling USD/INR down to the next target at 85.00 psychological level, followed by 84.84, the low of December 19. 

RBI FAQs

The role of the Reserve Bank of India (RBI), in its own words, is “..to maintain price stability while keeping in mind the objective of growth.” This involves maintaining the inflation rate at a stable 4% level primarily using the tool of interest rates. The RBI also maintains the exchange rate at a level that will not cause excess volatility and problems for exporters and importers, since India’s economy is heavily reliant on foreign trade, especially Oil.

The RBI formally meets at six bi-monthly meetings a year to discuss its monetary policy and, if necessary, adjust interest rates. When inflation is too high (above its 4% target), the RBI will normally raise interest rates to deter borrowing and spending, which can support the Rupee (INR). If inflation falls too far below target, the RBI might cut rates to encourage more lending, which can be negative for INR.

Due to the importance of trade to the economy, the Reserve Bank of India (RBI) actively intervenes in FX markets to maintain the exchange rate within a limited range. It does this to ensure Indian importers and exporters are not exposed to unnecessary currency risk during periods of FX volatility. The RBI buys and sells Rupees in the spot market at key levels, and uses derivatives to hedge its positions.