Forex Update: US Dollar/Indian Rupee Dynamics Amidst Global Tensions

As of August 27, 2025, the forex market has been witnessing significant fluctuations in the US Dollar/Indian Rupee (USD/INR) pair, primarily driven by geopolitical tensions and economic policies. The close price on August 25 was 87.6086, with the pair reaching a 52-week high of 88.0795 on August 4, 2025, and a low of 72.9671 on May 4, 2025.

US Tariffs and Indian Rupee’s Decline

The Indian Rupee has been under pressure, sliding to an over two-week low of approximately 87.95 against the US Dollar. This decline is largely attributed to looming US tariffs, which are set to impose a 50% tariff on Indian exports to the US starting Wednesday. The announcement has heightened trade tensions, with US President Trump’s decision to remove Fed’s Cook further impacting the Fed’s perceived independence, adding to the market’s unease.

Market Holidays and Trading Halts

Adding to the market’s volatility, both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) will remain closed on August 27 due to Ganesh Chaturthi. This closure affects trading in derivatives, equities, SLBs, currency derivatives, and interest rate derivatives, with the commodity derivatives segment also halting in the morning session.

Foreign Portfolio Investment Trends

Foreign Portfolio Investors (FPIs) have been net sellers, withdrawing $(122) million in the week ending August 22, 2025, following a significant $(4.90) billion net sell in the previous five weeks. This trend is influenced by the tariff overhang and President Trump’s stance on imposing punitive tariffs on India for its trade relations with Russia, despite a sovereign rating upgrade.

Central Bank Insights

The week leading up to August 23, 2025, was marked by the release of central bank minutes from both the Reserve Bank of India (RBI) and the US Federal Reserve (Fed). The RBI’s minutes suggested that the pause in August was temporary, while the Fed’s minutes revealed a disparity in views regarding the impact of tariffs on inflation and employment. This period of uncertainty is set to continue as attention shifts to the Jackson Hole Symposium, where Fed Chair Powell’s speech was noted for its ambivalence.

Gold Prices and Economic Indicators

In other economic news, gold prices in India have seen a decline, with the price per gram falling to 9,465.90 Indian Rupees (INR) from 9,482.82 INR. This movement in gold prices, alongside the USD/INR dynamics, reflects broader economic sentiments and investor reactions to global and domestic policy shifts.

As the situation evolves, the USD/INR pair remains a critical indicator of the interplay between geopolitical tensions, economic policies, and market sentiments. Investors and analysts alike are closely monitoring these developments, understanding that the coming weeks could bring further volatility or potential stabilization, depending on global economic and political responses.