- Indian Rupee softens in Wednesday’s early European session.
- Terrorist attacks in Kashmir weigh on sentiment and undermine the INR, but continuous foreign fund inflows might cap its downside.
- HSBC India Manufacturing PMI rose to 58.4 in April vs. 58.1 prior; Services PMI improved during the same reported period.
- The flash reading of US S&P Global PMI will take center stage later on Wednesday.
The Indian Rupee (INR) edges lower on Wednesday as rising crude oil prices and a renewed US Dollar (USD) demand weigh on sentiment and drag the Indian currency lower. The terrorist attack in Kashmir, India, contributes to the INR’s downside. At least 28 people were killed and many wounded on Tuesday when terrorists opened fire in a picturesque meadow near the resort town of Pahalgam in J&K, marking the deadliest attack since 2019.
The latest data released on Wednesday showed that the HSBC India Manufacturing Purchasing Managers Index (PMI) improved to 58.4 in April from 58.1 in March. Additionally, the Indian Services PMI rose to 59.1 in April versus 58.5 prior. The Composite PMI climbed to 60.0 in April from 59.5 in March. The local currency remains weak in an immediate reaction to the upbeat PMI data.
Nonetheless, potential portfolio inflows into local shares might help limit the INR’s losses. The preliminary reading of India’s April HSBC Purchasing Managers’ Index (PMI) is due later on Wednesday. On the US docket, the flash S&P Global PMI report will be the highlight.
Indian Rupee trades weaker amid global trade uncertainty
- India’s Prime Minister Narendra Modi is cutting short his visit to Saudi Arabia following the deadly terror attack on tourists in Jammu and Kashmir’s Pahalgam, sources said Tuesday. Modi is expected to leave Jeddah tonight and land in India early Wednesday morning, given the 2.5-hour time difference.
- Mumbai has emerged as the top destination for real estate equity investments in India, attracting $6.9 billion between calendar years 2022 and 2024, according to CBRE South Asia Pvt. Ltd. and the Confederation of Indian Industry (CII).
- The White House said on Tuesday that the Trump administration was making progress on negotiations of trade deals aimed at reducing the sweeping tariffs he announced earlier this month.
- US Press Secretary Karoline Leavitt said that 18 different countries have presented trade offers to the US and that Trump’s trade team was meeting with 34 countries this week to discuss potential agreements.
- Fed Board Governor Adriana Kugler said late Tuesday that with US import tariffs significantly larger than expected and likely to put upward pressure on prices, the US central bank ought to keep short-term borrowing costs steady until inflation risks recede.
- Money market traders have priced in 91 basis points (bps) of Fed rate cuts by the end of 2025, with the first cut expected in July, according to the CME FedWatch tool.
USD/INR’s bearish bias prevails under the 100-day EMA
The Indian Rupee trades on a weaker note on the day. The longer-term downtrend of the USD/INR remains in play, with the price holding below the key 100-day Exponential Moving Average (EMA) on the daily chart. The downward momentum is supported by the 14-day Relative Strength Index (RSI), which stands below the midline near 37.25.
The 85.00-84.90 zone acts as a key support level for USD/INR, representing the psychological level and the lower limit of the descending trend channel. A breach of this level could drag the price lower to 84.53, the low of December 6, 2024. The next contention level to watch is 84.22, the low of November 25, 2024.
In the bullish case, the first upside barrier emerges at 85.85, the 100-day EMA. If momentum picks up, bulls could target 86.45, the upper boundary of the trend channel.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
