The USD/INR stabilizes as the weak US dollar counteracts the impact of tariffs on the Indian rupee.

The Indian rupee remains almost flat around 87.80 against the US dollar in the early hours of trading on Thursday, after a holiday on Wednesday for Ganesh Chaturthi. What a relief to see some stability after so much chaos! Although honestly, this calm seems deceptive to me.

The USD/INR pair finds support in the sluggish behavior of the US dollar. But let's be clear - the outlook for the rupee is under brutal pressure since Trump announced those ridiculous tariffs against India earlier this month, which took effect on Wednesday.

From now on, all Indian products entering the US will be punished with an additional 50% tariff. What’s the result? Our exporters will have to sell cheaper to remain competitive. What a strategy to "make America great again"!

Foreign investors are fleeing Indian stock markets as if it were the plague. On Tuesday, they sold shares worth Rs. 6,516.49 crores. Throughout August, they have already disposed of Rs. 34,733.75 crores. It is no surprise that the Nifty50 has fallen more than 4% from its recent highs.

The dollar weakens after the dovish comments from Fed's Williams

The greenback is under selling pressure following comments from the president of the Federal Reserve Bank of New York, John Williams. The dollar index is around 98.10 points.

Williams spoke about the need to bring interest rates to a "neutral" level because "the economy is going through an adjustment process." He did not explicitly endorse a cut in September but left the door open by saying they want to see the upcoming data before deciding. Typical of the Fed - always so cautious that they seem to be walking on eggshells.

Operators see an 87% probability of a rate cut in September according to CME's FedWatch tool. I see it even more likely, the American economy urgently needs that stimulus.

The prospects for the dollar are uncertain due to the battle between Trump's economic agenda and the independence of the Fed. This week, Trump announced the firing of Governor Lisa Cook over mortgage allegations. Cook has responded that she will file a lawsuit to keep her job. This attack on the independence of the Fed will inevitably weaken the dollar in the long term.

Technical Analysis: USD/INR remains above the 20-day EMA

The USD/INR pair flattens around 87.80. The short-term trend remains bullish as long as it stays above the 20-day Exponential Moving Average, which is trading near 87.44.

The 14-day RSI rises above 60.00. If it remains above that level, we could see a new bullish momentum soon.

In case of a fall, the minimum of July 28 around 86.55 will act as a key support. On the upside, the maximum of August 5 close to 88.25 will be a critical obstacle for the pair.

Personally, I believe we will see more pressure on the rupee in the coming weeks. Trump's tariffs and the outflow of foreign capital are a cocktail that is too potent to ignore.