Indian Rupee extends correction as US Dollar maintains outperformance

• Further US Dollar gains leave the Indian Rupee on the defensive.
• Concerns over a faster pace of Fed monetary tightening have supported the US Dollar.
• October saw India’s annual retail inflation rise to 6.09%.

Accelerating inflationary pressures in the United States (US) are fuelling concerns that the Federal Reserve (Fed) will tighten monetary policy more aggressively, sustaining the US Dollar’s (USD) outperformance. Against that backdrop, the Indian Rupee (INR) continues the previous day’s correction on Friday following several weeks of gains. Having recovered from a five-week low of 93.61, USD/INR advances further towards 94.19.

During Asian trading, the US Dollar Index (DXY) remains close to Thursday’s 19-month high of 103.24. The index tracks the Greenback against a basket of six major currencies.

Dollar Index reaches new high as year-end Fed rate hike expectations strengthen

Describing the US Dollar as having “continued to strengthen,” MUFG analysts say the move has taken the Dollar Index to “a fresh year-to-date high.” In their assessment, the Dollar’s “renewed upward momentum has been encouraged by expectations that the Fed is likely to speed up the pace of rate hikes in response to the recent run of stronger US inflation data.”

Tuesday’s US Consumer Price Index (CPI) release showed monthly increases of 0.4% in headline inflation and 0.3% in core inflation, both exceeding expectations.

Attention now turns to October’s US Producer Price Index (PPI) figures, due at 13:30 GMT.

Foreign portfolio inflows supported INR’s recent gains

Robust demand from foreign portfolio investors has helped make the Indian Rupee “the surprise star performer in EMs this month,” according to strategists at Societe Generale, who cite a total return of “+1.6% vs USD”. With investors diversifying their market exposure “beyond AI-themed markets like South Korea and Taiwan,” the strategists note that FPI inflows have already “topp[ed] $5bn”. Sentiment has also benefited from “optimism over Iran truce following US mid-term election that has deflated Brent toward $90/b.”

India’s accelerating inflation strengthens the case for further RBI rate hikes

India’s October CPI reading, released on Thursday, put annual inflation at 6.09%, above both the 5.93% forecast and the previous reading of 5.54%. Retail inflation has now accelerated for 12 consecutive months.

The figures bolster the argument for the Reserve Bank of India (RBI) to raise interest rates at its December policy meeting. At its October meeting, the Indian central bank also increased its key Repo Rate by 25 basis points (bps), taking it to 5.5%.

Commerzbank Research analysts warn that, “more worryingly for RBI, this low base effect will persist into November and December, which is likely to keep inflation elevated above 6.0% throughout Q4 2026.” Their wider assessment remains that price pressures will stay close to the upper end of the central bank’s target range well into the medium term, supporting expectations of additional monetary tightening.

USD/INR Retains Bearish Technical Bias

Trading at 94.1525 on the daily chart, USD/INR retains a bearish short-term bias below the 20-day exponential moving average (EMA) of 94.5712, which limits the upside. Although the Relative Strength Index (14) has recovered to 37.34, taking the pair out of oversold territory, bullish momentum remains muted as the price stays beneath this key EMA resistance.

The 20-day EMA at 94.5712 provides the first resistance level. A sustained move above it would be required to temper the prevailing downside bias. Below that average, the pair remains exposed to further declines, with neither moving averages nor Fibonacci levels providing nearby technical support. Momentum indicators point only to the possibility of consolidation, rather than a convincing rebound.

(The technical analysis of this story was written with the help of an AI tool. Know more.)