USD/INR Opens Higher Amid Escalating US-India Trade Tensions

The Indian Rupee weakened against the US Dollar Friday, jumping to around 88.50—dangerously close to Thursday’s all-time high of 88.60. This decline comes as trade tensions between Washington and New Delhi continue to simmer despite ongoing negotiations.

I’ve watched this situation deteriorate rapidly. The US initially gave its trading partners a 90-day grace period to close trade agreements before imposing reciprocal tariffs. India could have been first to secure a deal, but border conflicts with Pakistan derailed those plans. Now India faces the highest US tariffs for its Russian oil purchases.

US Commerce Secretary Howard Lutnick didn’t mince words in a CNBC interview: “We’re going to sort out India once it stops buying Russian oil.” Meanwhile, Financial Times reports the US is pressuring G7 nations to impose higher tariffs on both India and China for purchasing Russian oil.

Foreign investors are clearly spooked, with FIIs selling Rs. 3,472.37 crores worth of shares from Indian equity markets on Thursday alone. I’m not surprised—this kind of geopolitical pressure typically triggers capital flight.

The dollar’s performance isn’t helping matters. The US Dollar Index rebounded 0.15% to 97.65 after Thursday’s sharp decline, which followed alarming US labor data. Initial jobless claims hit 263K—their highest level in four years and well above the expected 235K.

This weakening job market has fueled speculation that the Federal Reserve will cut interest rates next week. According to CME FedWatch, traders see a 7.5% chance of a 50-basis-point cut, with most expecting a standard 25-basis-point reduction.

Meanwhile, US inflation accelerated to 2.9% annually in August, faster than July’s 2.7%. This combination of rising inflation and weakening employment raises the specter of stagflation—a nightmare scenario that would force the Fed into an extremely delicate balancing act.

For India, today’s Consumer Price Index data (expected at 2.1%, up from 1.55%) could further influence the USD/INR pair, which remains technically bullish as it trades above the 20-day Exponential Moving Average.

The RSI rebounding from 60.00 suggests fresh bullish momentum. While the 20-day EMA near 88.00 provides support, the psychological 89.00 level looms as the next major resistance.

In this environment, I’m watching for further deterioration in US-India relations and potential market interventions from the Reserve Bank of India, which typically steps in when the rupee approaches historic lows.