USD/INR remains stronger despite India–EU free trade agreement

• The Indian Rupee remains under pressure as traders adopt caution ahead of the Fed policy due on Wednesday.
• The INR weakened as equity outflows accelerated and importer hedging outweighed exporters amid depreciation expectations.
• Indian markets may find support from a potential India–EU trade deal, boosting pharma, textiles, and chemicals exports.

The USD/INR pair continues its winning streak that began on January 15, maintaining its position near an all-time high of 91.96, reached on January 23. The Indian Rupee (INR) could stay under pressure against the US Dollar (USD) as traders remain cautious ahead of the Federal Reserve’s (Fed) policy decision on Wednesday. While rates are expected to remain unchanged, markets will scrutinize the Fed’s statement and Chair Jerome Powell’s press conference for clues on the timing of future rate cuts.

The Indian Rupee came under pressure as equity outflows accelerated last week and importer hedging outweighed exporter activity amid growing depreciation expectations. However, a potential India–European Union (EU) free trade agreement this week could provide a counter-cyclical buffer by boosting exports in pharma, textiles, and chemicals, while improving regulatory clarity and attracting foreign inflows, helping limit downside risks to the Rupee.

The USD/INR pair may find early support from mildly positive US and Asian market sentiment, along with near-term optimism sparked by remarks from the US administration on possible tariff rollbacks. The US could remove the 25% punitive tariffs imposed on India in mid-2025 for purchasing Russian oil, following comments by US Treasury Secretary Scott Bessent on the sidelines of the World Economic Forum in Davos last week, which fueled speculation about easing trade tensions.

RBI’s INR 1 lakh crore liquidity infusion via government bond purchases is expected to stabilize funding conditions. With the Union Budget and clarity on US–India trade timelines pending, markets are likely to stay cautious, according to Reuters.

US Dollar stays pressured amid rising political uncertainty, shutdown risks

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is remaining subdued and trading near 97.00 at the time of writing. The Greenback remains under pressure from rising political uncertainty, with the US government heading toward a potential partial shutdown.
• Senate Democratic leader Chuck Schumer has vowed to oppose a funding package that includes appropriations for the Department of Homeland Security, leaving Congress facing a January 30 deadline to avert a shutdown.
• Traders may also turn cautious amid uncertainty surrounding the Federal Reserve (Fed). US President Donald Trump said last week he would soon announce his nominee to replace Fed Chair Jerome Powell, fueling speculation that the next chair could favor faster interest rate cuts.
• Trump warned he would impose 100% tariffs on Canadian goods if Ottawa were to strike a trade deal with China, the BBC reported over the weekend. In response, Canada’s Prime Minister Mark Carney said on Sunday that Canada has no plans to pursue a free trade agreement with China, clarifying that his recent understanding with Beijing only reduced tariffs in a few sectors that had been hit recently.
• US President Donald Trump said he would step back from imposing tariffs on goods from European nations opposing his effort to take possession of Greenland. He said earlier there is “no going back” on his ambitions regarding Greenland, alongside earlier threats to impose new 10% tariffs on eight European Union (EU) countries.
• The US Gross Domestic Product grew at an annualized rate of 4.4% in the third quarter of 2025, slightly more than expected and the previous reading of 4.3%. Additionally, the Initial Jobless Claims came in at 200K last week, below the market consensus of 212K.
• US Personal Consumption Expenditures (PCE) Price Index rose to 2.8% year-over-year in November from 2.7% in October. On a monthly basis, the PCE Price Index rose by 0.2%. The annual core PCE Price Index, the Federal Reserve's (Fed) preferred gauge of inflation, rose by 2.8% in November, following the 2.7% increase recorded in October and matching the market expectation.
• Fed officials have signaled little urgency to ease policy further until there is clearer evidence that inflation is sustainably moving toward the 2% target. Morgan Stanley analysts revised their 2026 outlook, now forecasting one rate cut in June followed by another in September, compared with their previous expectation of cuts in January and April.

Technical Analysis: USD/INR remains close to record highs near 92.00

USD/INR is trading around 91.80 at the time of writing. The technical analysis of the daily chart suggests a persistent bullish bias as the pair is rising within the ascending channel pattern. However, the 14-day Relative Strength Index (RSI) at 78 suggests the asset is overbought, signaling stretched momentum and an increased risk of a near-term pullback or consolidation.

The immediate resistance lies at the all-time high of 91.96, recorded on January 23, followed by the upper boundary of the ascending channel around 92.10. On the downside, the nine-day Exponential Moving Average (EMA) at 91.28 could act as the primary support. A break below the short-term average would expose the area around the lower ascending channel at 90.20.