USD/INR Reaches Record Highs Amid Ongoing FII Outflows
GlobePRwire
The Indian Rupee (INR) plunged to record lows against the US Dollar (USD) on Wednesday, as the USD/INR pair surged to near 91.85. The decline in the domestic currency has been driven by persistent foreign fund outflows, weak investor sentiment, and geopolitical tensions affecting global markets. The LFtrade team provides a comprehensive and well-organized breakdown of the matter.
Foreign Institutional Investors' Exit Weighs on INR
The consistent outflow of Foreign Institutional Investors (FIIs) from the Indian stock market has been a major factor behind the Rupee’s weakness. FIIs are net sellers, offloading stakes worth Rs. 32,253.55 crore in January alone, selling in 12 out of 13 trading sessions.
This sustained selling pressure has reduced demand for the INR, while keeping US Dollar demand high among Indian importers. The risk-off sentiment has been exacerbated by ongoing trade tensions between the US and India, with no bilateral trade deal in sight.
Impact on Indian Equities
The Indian equity market has borne the brunt of these foreign fund outflows. The Nifty50 has declined 4.3%, dropping from its recent high of 26,373 on January 5 to around 25,250.
Trade disputes between the US and India further amplify market pressures. In mid-2025, the US imposed punitive tariffs of 25% on imports from India, primarily targeting oil purchases from Russia, which has strained bilateral trade and dampened investor confidence.
Market participants are now eyeing the upcoming Indian fiscal budget for FY 2026-2027, scheduled for February 1, as a potential trigger for stabilizing the INR and improving equity market sentiment.
US-EU Disputes Pressure Global Dollar Markets
Despite the INR’s weakness, the US Dollar (USD) has also faced headwinds, as US-EU tensions over Greenland and retaliatory tariffs weigh on US assets.
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, is trading vulnerable near 98.50, reflecting market caution. The US President’s 10% tariffs on several EU nations and the UK in response to opposition over Greenland’s purchase have escalated global trade tensions.
French President Emmanuel Macron condemned the use of tariffs as a form of economic blackmail, stressing that such tactics threaten territorial sovereignty and global stability.
Market analysts warn that ongoing US-EU friction could further weaken US exports, potentially undermining the appeal of US assets globally, including in India, China, and Russia.
On the domestic front, US Treasury Secretary Scott Bessent announced at the World Economic Forum (WEF) that the White House may soon name a new Federal Reserve (Fed) Chairman, adding another layer of uncertainty for currency markets.
Technical Analysis: USD/INR Approaches 92
From a technical standpoint, USD/INR has been on a strong upward trajectory, surging to near 91.85. The 20-day Exponential Moving Average (EMA) at 90.60 has provided dynamic support, keeping the uptrend intact.
The 14-day Relative Strength Index (RSI) stands at 73.53, indicating overbought conditions. While this suggests stretched momentum, it also points to a potential short-term consolidation rather than a sharp reversal.
Key support levels lie near the rising EMA, and a sustained price above this zone would indicate trend stability. Conversely, a break below the EMA could trigger a deeper pullback toward 90.00 or lower.
Overall, the technical setup favors continuation, with the path of least resistance pointing upwards. Dips toward the EMA could be treated as buying opportunities, especially for traders with a bullish bias.
Outlook: Factors Driving INR in the Near Term
The Indian Rupee remains vulnerable, shaped by a mix of domestic and global dynamics. On the domestic front, key drivers include FII outflows and reduced equity market inflows, ongoing trade tensions with the US, and market attention on the FY 2026–2027 budget announcement.
Globally, the Rupee is influenced by US-EU disputes over Greenland and retaliatory tariffs, weak US Dollar sentiment amid geopolitical uncertainty, and potential changes in Fed leadership that could affect interest rate expectations. Together, these factors contribute to the Rupee’s heightened sensitivity to market movements.
Market watchers believe that unless there is a resolution in trade disputes or supportive domestic policy announcements, the INR could test levels beyond 92. However, any stabilization in FII flows or positive fiscal signals could reverse the downward trajectory, providing short-term relief for the domestic currency.
Conclusion
The USD/INR surge to 91.85 underscores the fragility of the Indian Rupee in the face of persistent FII outflows and geopolitical tensions. While technical indicators suggest the trend remains bullish, overbought conditions may invite temporary corrections.
Ultimately, the INR’s direction in the near term will hinge on several critical factors, including FII participation in Indian markets, US-India trade developments, global US-EU relations, and domestic fiscal policy measures.
For traders and investors, closely monitoring these key triggers is essential, as USD/INR could experience continued volatility, potentially testing new highs before settling into a long-term equilibrium.