• The Indian Rupee extends correction against the US Dollar after the RBI’s policy decision.
• The Indian central bank kept the Repo Rate steady at 5.25%, as expected.
• Accelerating dovish Fed expectations have put some pressure on the US Dollar.

The Indian Rupee (INR) falls sharply against the US Dollar (USD) during afternoon trading hours in India on Friday. The USD/INR pair recovers to near 90.85, even as the Reserve Bank of India’s (RBI) monetary policy announcement has held the Repo Rate unchanged at 5.25%, as expected.

The RBI was expected to maintain the status quo as it reduced the Repo Rate by 125 basis points (bps) in 2025, as price pressures have rebounded in the past few months, and the announcement of trade deals with the United States (US) and the European Union (EU) has lifted growth prospects. The Indian central bank has maintained a “neutral” stance on the monetary policy outlook, citing that India’s economy is in a “good spot” even as global uncertainties remain “elevated”.

In the post-monetary policy conference, Governor Sanjay Malhotra said, "The policy rates will continue to be at low levels for a long period of time (and) they will go down even further," The Hindu reported.

On the economic outlook, the RBI expects higher-than-projected real Gross Domestic Product (GDP) over the next two quarters on the back of trade deals and said it will provide fresh GDP projections at the April policy meeting.

The Indian Rupee has outperformed over the past few days following confirmations from India and the United States (US) that both will reduce tariffs. On Monday, US President Donald Trump said through a post on Truth Social that tariffs on imports from New Delhi will be lowered to 18%, from 50% prior, and there will be zero tariff charged on exports from Washington to India, which was later acknowledged by Indian Prime Minister (PM) Narendra Modi.

The event led to a sharp increase in the Indian Rupee, strong demand for Indian stocks, and a significant inflow of foreign funds into the Indian equity market. However, the lack of follow-up buying by Foreign Institutional Investors (FIIs) is weighing on market sentiment.

According to data from the National Stock Exchange (NSE), FIIs turned out to be net sellers on Thursday, offloading their stake worth Rs. 2,150.51 crore. On Tuesday, a day after the US-India trade truce, FIIs bought shares worth Rs. 5,236.28 crore.

Daily Digest Market Movers: US NFP to drive Fed expectations meaningfully

• The US Dollar struggles to extend its week-long rally on Friday as prospects of the Federal Reserve (Fed) reducing interest rates have improved, following a string of weak labor market data.
• At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% lower to near 97.85. Still, the DXY is close to its weekly high of 97.98 posted on Thursday.
• The CME FedWatch tool shows that traders see a 22.7% chance that the Fed will cut interest rates by 25 basis points (bps) to 3.25%-3.50% in the March policy meeting, up from 9.4% seen on Wednesday.
• The US JOLTS Job Openings data for December showed on Thursday that employers posted 6.542 million fresh jobs, significantly lower than estimates of 7.2 million and the previous reading of 6.928 million.
• On Wednesday, the ADP reported that the private sector created 22K jobs in January, fewer than 37K in December.
• A majority of Federal Open Market Committee (FOMC) members have been expressing concerns over weak labor market conditions, citing the need for more interest rate cuts to support the same.
• For more cues on the current state of employment, investors will focus on the Nonfarm Payrolls (NFP) data for January, which will be released on Wednesday. The data has been delayed due to a partial federal shutdown, which resumed on Tuesday.

Technical Analysis: USD/INR reclaims 20-day EMA

USD/INR jumps to near 90.85 at the press time. The pair recovers to near the 20-day Exponential Moving Average (EMA) at 90.95.

The 14-day Relative Strength Index (RSI) rebounds to near 50 (neutral), indicating buying interest at lower levels.

As long as the spot remains under the 20-EMA, rallies could stall, and the pair would continue to test lower levels. A recovery through the 20-EMA at 90.9282 would improve tone and open room for stabilization, while failure to reclaim it would preserve downside risk.

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