USD/INR: Indian Rupee Slides on July 18 as Fed Dovish Hopes Fade and Trade Uncertainty Lingers

The Indian Rupee (INR) fell to a fresh 3 week low against the US Dollar (USD) on Friday, with the USD/INR pair surging to nearly 86.35. The Greenback remained strong as traders reassessed expectations of near-term rate cuts by the US Federal Reserve, leading to a broad dollar rally.

At the same time, the delay in finalising a long-anticipated US-India trade agreement has added to the INR’s weakness, keeping investor sentiment cautious.

Why is the Rupee Weakening?

The latest boost in USD strength comes as US inflation data and economic indicators show resilience. The June Consumer Price Index (CPI) pointed to persistent inflation pressures, prompting markets to scale back expectations for a Fed rate cut in September.

According to the CME FedWatch Tool, the probability of a cut has dropped from 70.4% to 58% in just a week. Additionally, the Fed is now widely expected to hold rates steady at its upcoming policy meeting.

Adding to the bullish momentum for the dollar, US Retail Sales for June exceeded forecasts, rising 0.6% month-on-month.

Trade Deal Delay Adds Pressure on INR

The Rupee’s challenges have been compounded by uncertainty over a bilateral trade deal between the US and India. While US President Donald Trump has repeatedly stated that a deal is imminent, the lack of formal confirmation continues to weigh on Indian markets. Many Indian exporters, particularly those with heavy exposure to the US, remain hesitant to commit to new investments amid uncertainty over future tariffs.

The tension dates back to April 2’s "Liberation Day" announcement, when the US imposed 26% tariffs on Indian imports. Although those tariffs were paused for 90 days to allow negotiations, the clock is ticking. With no official agreement in sight, Indian businesses are left in limbo.

Read More: Washington Rejects India’s Auto Tariff Claim at WTO, Cites National Security.

Conclusion

The recent slide in the Indian Rupee reflects a mix of global and domestic factors, from shifting US monetary policy expectations to ongoing trade uncertainties. While the fundamentals of the Indian economy remain intact, near-term volatility in USD/INR may persist until there is greater clarity on interest rate direction from the Federal Reserve and a formal resolution to the US-India trade negotiations. For now, markets are likely to remain sensitive to any new data or developments on both fronts.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.