Forex News
- US Dollar Index declines to around 101.00 in Thursday’s early European session.
- The DXY keeps a bullish vibe above the 100-day SMA on the daily chart.
- The first upside barrier emerges at 101.45; the initial support level to watch is 100.60.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 101.00 in the early European trading hours on Thursday. The DXY weakens amid improved risk sentiment. However, the potential downside might be limited due to a flare-up in tensions between the United States (US) and Iran.
US President Donald Trump said that the US will “destroy one bridge or power plant” every time Iran targets a ship transiting the Strait of Hormuz. Meanwhile, Iran stated that it will hit infrastructure and energy facilities across the region.
Money markets are now pricing in a 33.7% probability of a rate hike from the US Federal Reserve (Fed) this month, as well as a 76.8% chance of at least a quarter-point hike in September, according to the CME FedWatch tool.
Technical Analysis:
In the daily chart, the near-term tone of Dollar Index Spot remains mildly bullish as price holds above the 100-day simple moving average (SMA) and operates near the upper half of the Bollinger envelope. However, the Relative Strength Index (RSI) at 54.36 sits in neutral-to-positive territory, hinting at steady rather than aggressive upside momentum.
On the topside, a daily close above the upper band at 101.45 would expose the June 24 high of 101.80. Any follow-through buying above this level could pave the way to the 102.00 psychologocal level.
On the downside, initial support is seen at the lower Bollinger band around 100.60. The key contention level is located at the 100.00 round mark, ahead of the more meaningful trend floor at the 100-day SMA near 99.65.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed seen on extended hold even as hiking bar falls
According to TD Securities, the policy outlook remains one of patience, with the bank expecting "the Fed to remain on an extended hold." Strategists acknowledge that "the bar for the Fed to hike is lower," but argue that the FOMC will "likely need to see more evidence of continued strength in inflation and the labor market before embarking on a hiking path." TD Securities also cautions that in an environment where the Fed is forced to tighten "due to supply-side inflation concerns, other global central banks, including the ECB, are likely hiking as well," reinforcing a more synchronised global policy backdrop.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- GBP/USD edges higher to near 1.3387 amid a slight weakness in the US Dollar.
- UK headline inflation cooled down to 2.6% YoY in June.
- Investors await the UK Retail Sales and the flash private sector PMI data.
The British Pound (GBP) trades marginally higher to near 1.3387 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair edges higher as the US Dollar drops despite surging oil prices in the wake of escalating Middle East energy supply risks.
At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.15% lower to near 101.00.
On the domestic front, investors await the Federal Reserve’s (Fed) monetary policy announcement next week, in which it is expected to leave interest rates unchanged.
Meanwhile, the British Pound demonstrates a broader mixed performance while fears of Bank of England (BoE) interest rate hikes have eased. Traders doubt the BoE will tighten monetary conditions in the near term as the United Kingdom (UK) headline Consumer Price Index (CPI) growth has cooled down to 2.6% Year-on-Year (YoY) in June from the previous reading of 2.8%.
BoE seen on extended hold before gradual easing to neutral in 2027
Economists at Societe Generale reiterate that their “baseline forecast remains that the BoE will keep Bank Rate on hold at 3.75% throughout 2026,” reflecting a view that policymakers will need prolonged time to consolidate the disinflation trend. They add that “by early 2027, we expect the MPC to gain confidence that inflation will return sustainably to the 2% target over the medium term, allowing for cumulative rate cuts of 75bp in 2027,” which would “bring Bank Rate to our estimate of its neutral level of 3%.”
Going forward, investors will focus on the UK Retail Sales for June and the preliminary S&P Global PMI data for July, which will be released on Friday.
GBP/USD technical analysis
GBP/USD trades slightly higher at around 1.3387 at press time. The pair corrects to near the 20-day exponential moving average (EMA), which is at 1.3385, after correcting from the downward-sloping border of the Descending Triangle pattern at 1.3540, suggesting that the near-term outlook has become uncertain.
The Relative Strength Index (14) at 50.73 sits near neutral, hinting that recent buying pressure is stabilizing rather than driving a decisive breakout, leaving the near-term bias slightly constructive but still capped by overhead trend resistance.
On the topside, initial resistance is located at the downward-sloping trend-line region near 1.3501, followed by the July 15 high at 1.3558. On the downside, the July 8 low at 1.3322 is the immediate support zone, with a more notable cushion at the June 24 low at 1.3140.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
Consumer Price Index (YoY)
The United Kingdom (UK) Consumer Price Index (CPI), released by the Office for National Statistics on a monthly basis, is a measure of consumer price inflation – the rate at which the prices of goods and services bought by households rise or fall – produced to international standards. It is the inflation measure used in the government’s target. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.
Read more.Last release: Wed Jul 22, 2026 06:00
Frequency: Monthly
Actual: 2.6%
Consensus: 2.7%
Previous: 2.8%
Source: Office for National Statistics
The Bank of England is tasked with keeping inflation, as measured by the headline Consumer Price Index (CPI) at around 2%, giving the monthly release its importance. An increase in inflation implies a quicker and sooner increase of interest rates or the reduction of bond-buying by the BOE, which means squeezing the supply of pounds. Conversely, a drop in the pace of price rises indicates looser monetary policy. A higher-than-expected result tends to be GBP bullish.
Lloyd Chan at MUFG underscores escalating US–Iran tensions and threats to energy infrastructure and shipping through the Strait of Hormuz and Bab el-Mandeb. He notes that Brent has rebounded above USD90 and that attacks on Saudi Oil tankers and warnings to shipping firms heighten the risk of a broader global energy shock impacting regional exports and markets.
Brent supported by rising conflict risk
"Geopolitical risks in the Middle East continue to escalate as tensions between the US and Iran intensify once again. President Trump warned that the US would target Iranian bridges and power infrastructure if Iran attacks vessels transiting the Strait of Hormuz. In response, Iran stated that it would strike power facilities across the Gulf region if its own infrastructure and energy assets come under attack."
"Tehran has also warned shipping companies against using alternative routes around Hormuz. Since the collapse of the US-Iran ceasefire memorandum signed in June, renewed hostilities have led to a sharp decline in tanker traffic through the Strait of Hormuz."
"Adding to supply concerns, the Houthis have reportedly attacked two Saudi oil tankers in the Red Sea, threatening shipping through the Bab el-Mandeb Strait—an increasingly important alternative route for regional oil exports."
"The key market risk is whether the conflict shifts from a phase of renewed escalation to one that triggers a broader global energy shock. Brent crude prices have rebounded above USD90/bbl this month."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- Silver hit resistance at $61.00, but dips have remained limited above the $58.45 area
- Surging Oil prices have sent US Treasury yields rallying, adding pressure on precious metals.
- The immediate bias remains positive after rallying 7.5% in the previous four days.
Silver (XAG/USD) is trading practically flat, a few cents below the $60.00 level on Thursday, with upside attempts capped as US Treasury yields jump to fresh highs. The precious metal was rejected at the $61.00 area on Wednesday, but the following reversal found buyers at the middle range of the $58.00s earlier in the day.
Markets remain in a cautious mood as the war in Iran threatens to extend through the region. US and Iran have exchanged attacks for the 12th consecutive day, and reports of attacks on Saudi Arabian vessels in the Red Sea have sent Oil prices to their highest levels since early June, spurring inflationary pressures and pushing US Treasury yields higher. This is likely to keep Silver bulls in check during the next sessions.
Technical Analysis: The immediate bias remains positive
XAG/USD trades at $59.70, holding above the broken downward trendline, consolidating gains after a 7.5% rally in the last four trading days. The 4-hour Relative Strength Index (14) is hovering in bullish territory, and the Moving Average Convergence Divergence (MACD) indicator is still positive, although showing fading momentum.
On the topside, initial resistance appears at the horizontal barrier around $60.70, which capped bulls on July 9, ahead of July's top, at the $63.30 area. On the downside, the session low at $58.46 is likely to provide some support ahead of the broken trendline, now at $55.50, and the year-to-date low, at $54.72.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
United Overseas Bank’s Quek Ser Leang and Lee Sue Ann expect GBP/USD to consolidate intraday between 1.3350 and 1.3400 after a modest pullback from recent lows. However, for the coming weeks, Quek Ser Leang warns that rapidly building downside momentum means a daily close below 1.3340 could open 1.3300. The strong resistance cap has been lowered to 1.3435, while the broader multi‑month view remains range‑bound.
Pound-Dollar pressured but still range bound
"24-HOUR VIEW: GBP dropped sharply to a low of 1.3360 two days ago. Yesterday, when GBP was at 1.3375, we indicated that “the rapid increase in downward momentum suggests GBP could continue to decline.” However, we highlighted that “last week’s low, near 1.3340, is expected to provide firm support.” GBP weakened less than expected to 1.3355 before closing largely unchanged at 1.3376 (+0.01%). With momentum indicators turning flat, we expect GBP to consolidate today, most likely between 1.3350 and 1.3400."
"1-3 WEEKS VIEW: Following the sharp decline in GBP two days ago, we highlighted yesterday (22 Jul, spot at 1.3375) that “downward momentum is increasing rapidly, and if GBP closes below 1.3340, it is likely to decline further to 1.3300.” We added, “the likelihood of GBP closing below 1.3340 will remain intact as long as the ‘strong resistance’ level, now at 1.3455, is not breached.” We continue to hold the same view, but we are revising the ‘strong resistance’ level to 1.3435."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/CAD weakens to around 1.4060 in Thursday’s early European session.
- Escalating US-Iran tensions and fresh Houthi threats boost the commodity-linked Loonie.
- Money markets are now pricing in a 26% chance of a rate hike from the Fed’s July policy meeting.
The USD/CAD pair attracts some sellers to near 1.4060 during the early European trading hours on Thursday. A rise in crude oil prices provides some support to the commodity-linked Canadian Dollar (CAD) against the US Dollar (USD). Traders brace for Canada’s Retail Sales data, which will be released later on Thursday.
Crude oil prices continued to surge amid rising tensions in the Middle East. Iran-backed Houthi militants targeted two Saudi oil tankers in the Red Sea, raising fears of potential supply disruptions.
On Thursday, US President Donald Trump warned the US would target Iranian infrastructure if attacks on vessels in the Strait of Hormuz continued. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Loonie.
Traders continue to gauge prospects for more hawkish US Federal Reserve (Fed) policy measures. “The probability of a July hike was back up to 26% by [Tuesday’s] close, the highest since last week’s downside surprise in the U.S. CPI print,” said Deutsche Bank’s Jim Reid. “It was at 45% the day before CPI and as low as 10% the day after.”
Market participants will keep an eye on the US S&P Global Flash Purchasing Managers Index (PMI) report due on Friday. This report could offer some hints about the economic health of American manufacturing and service sectors. In case of stronger-than-expected outcomes, this could underpin the Greenback against the CAD in the near term.
Us tariffs seen keeping USDCAD elevated despite year-end pullback
According to TD Securities, lingering trade uncertainty around the new US section 338 measures is likely to keep the Loonie under pressure. Strategists at the bank expect that “trade uncertainty [will] keep USDCAD above 1.40 near term,” but still “see scope for it [to] move toward our 1.39 year-end forecast” as conditions stabilize.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
- EUR/USD trades higher to near 1.1430 ahead of the ECB’s monetary policy announcement.
- The ECB is expected to keep policy rates steady.
- Investors seek fresh cues regarding Eurozone second-round inflation risks.
The Euro (EUR) is up 0.15% at around 1.1430 against the US Dollar (USD) during the early European trading session on Thursday. The EUR/USD pair rises as the major currency outperforms its peers ahead of the European Central Bank’s (ECB) monetary policy announcement at 12:15 GMT.
Euro Price Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.15% | -0.09% | -0.05% | -0.15% | -0.23% | -0.04% | -0.13% | |
| EUR | 0.15% | 0.08% | 0.11% | 0.00% | -0.08% | 0.13% | 0.03% | |
| GBP | 0.09% | -0.08% | 0.04% | -0.09% | -0.16% | 0.05% | -0.05% | |
| JPY | 0.05% | -0.11% | -0.04% | -0.11% | -0.19% | -0.01% | -0.09% | |
| CAD | 0.15% | 0.00% | 0.09% | 0.11% | -0.09% | 0.11% | 0.01% | |
| AUD | 0.23% | 0.08% | 0.16% | 0.19% | 0.09% | 0.21% | 0.12% | |
| NZD | 0.04% | -0.13% | -0.05% | 0.00% | -0.11% | -0.21% | -0.10% | |
| CHF | 0.13% | -0.03% | 0.05% | 0.09% | -0.01% | -0.12% | 0.10% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The ECB is expected to leave policy rates steady after a 25-basis point (bp) hike in the June policy meeting. Therefore, investors will pay close attention to the monetary policy statement and remarks from ECB President Christine Lagarde in the press conference regarding the monetary policy and the inflation outlook.
According to a Reuters report, traders price in two more interest rate hikes from the ECB this year. Market participants would like to know whether fears of second-round effects of inflation in the Eurozone economy are real.
ECB policymaker and Governor of Bank of Italy, Fabio Panetta, said in the mid of the month that the central bank’s goal is to keep inflation expectations firmly anchored and limit indirect and second-round effects of shocks.
Meanwhile, the US Dollar (USD) faces marginal selling pressure despite surging oil prices amid Middle East energy supply risks.
EUR/USD technical analysis
EUR/USD trades higher at around 1.1430 at press time. The major currency pair has rebounded to near the 20-period exponential moving average (EMA), which is at 1.1433, signaling a neutral near-term bias. The pair trades in a Bearish Flag chart pattern, which is a trend-following pattern that continues a downside trend after a brief pause.
The Relative Strength Index (14) stays inside the 40.00-60.00zone, hinting at subdued bullish momentum and reinforcing the idea that rallies are vulnerable while price holds beneath the nearby moving average and trend-line resistance.
On the topside, the psychological level of 1.500 is the immediate resistance, with a more notable barrier at the upper line of the rising channel near 1.1521. On the downside, initial support is seen at the channel’s lower boundary around 1.1402; a clear break beneath this floor would open the way for a deeper slide towards the June 24 low at 1.1384.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Economic Indicator
ECB Rate On Deposit Facility
One of the European Central Bank's three key interest rates, the rate on the deposit facility, is the rate at which banks earn interest when they deposit funds with the ECB. It is announced by the European Central Bank at each of its eight scheduled annual meetings.
Read more.Next release: Thu Jul 23, 2026 12:15
Frequency: Irregular
Consensus: 2.25%
Previous: 2.25%
Source: European Central Bank
- Gold struggles to gain any meaningful traction during the Asian session on Thursday.
- Inflation fears bolster Fed rate hike bets and act as a headwind for the commodity.
- Some follow-through USD selling limits any meaningful losses for the precious metal.
Gold (XAU/USD) consolidates above the $4,100 round figure through the Asian session on Thursday and, for now, seems to have stalled its modest pullback from an over two-week high touched the previous day. Crude oil prices climb to a fresh high since June 11 amid a further escalation of tensions between the US and Iran, fueling inflation fears and bolstering US Federal Reserve (Fed) interest rate hike expectations. This, in turn, lifts US Treasury bond yields to a multi-month high and is seen acting as a headwind for the non-yielding bullion.
The US and Iran traded strikes for a 12th night in a row, while Yemen's Iran-aligned Houthis opened a new front in the war and declared a blockade on a key Red Sea shipping route that facilitates about 7% of the world’s oil supply. This comes on top of a significant fall in shipping traffic through the Strait of Hormuz and exacerbates supply disruption concerns, assisting crude oil to prolong its month-to-date uptrend. Investors remain worried that rising energy prices would rekindle inflationary pressure and force central banks to adopt a more hawkish stance.
According to the CME Group's FedWatch Tool, traders are currently pricing in over a 90% chance that the Fed will hike interest rates by the end of this year. The outlook remains supportive of elevated US bond yields, with the benchmark 10-year Treasury bond yield holding firm near a two-month high. However, some follow-through US Dollar (USD) weakness lends some support to the Gold price and helps limit the downside. This makes it prudent to wait for strong follow-through selling before confirming that a one-week-old uptrend has run out of steam.
Analysts at Deutsche Bank highlight that the rates move was accompanied by a notable shift in policy expectations, with investors now "priced in a more hawkish path for the Fed, with 34bps of hikes now priced in by the December meeting, up +2.3bps on the day." They note that this repricing has helped reinforce the recent rise in US real yields and the broader selloff across the Treasury curve.
Traders now look forward to the release of the usual Weekly Initial Jobless Claims data from the US for some impetus during the early North American session. Furthermore, the highly-anticipated European Central Bank (ECB) meeting could infuse some volatility in financial markets. Apart from this, further developments surrounding the Middle East crisis should contribute to producing short-term trading opportunities around Gold.
XAU/USD 4-hour chart
Gold bulls await breakout through $4,155-$4,165 confluence
The XAU/USD pair stalled a one-week-old uptrend near the $4,155-$4,165 confluence – comprising the 200-period Exponential Moving Average (EM) on the 4-hour chart and the 23.6% Fibonacci retracement level of the April-June downfall. The said area should now act as a key pivotal point for short-term traders amid constructive momentum indicators. The Relative Strength Index (RSI) hovers near 63, and the Moving Average Convergence Divergence (MACD) stays positive, hinting that buyers retain some control but are constrained by overhead supply.
This, in turn, suggests that the precious metal would first need to clear the aforementioned clustered resistance to back the case for any further appreciation. A sustained break above this would open the way towards 23.6% Fibo. retracement at $4,164.97 and the denser barrier near the 38.2% retracement at $4,303.59. On the downside, the primary structural floor is the Fibo. anchor at $3,940.90, where a deeper pullback could find demand and attempt to rebuild a more stable base for Gold.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
- The Indian Rupee regains ground against the US Dollar as the RBI intervenes to support the domestic currency.
- Surging oil prices will likely keep the Indian Rupee under pressure.
- FIIs turned out to be net sellers on Wednesday.
The Indian Rupee (INR) opens marginally higher against the US Dollar (USD) on Thursday on possible Reserve Bank of India (RBI) intervention in spot and non-deliverable forwards (NDFs) markets to support the currency. The USD/INR pair edges down to near 96.47, but is still close to its two-month high of 96.75 posted on Monday.
According to a Reuters report, the RBI likely intervened in the foreign exchange market on Thursday to limit the INR's losses as a relentless rise in oil prices deepened the South Asian unit's drift back towards record lows.
The Indian central bank is seen intervening several times in the past few weeks, as the Asian currency has underperformed significantly due to higher oil prices and the consistent outflow of foreign funds from the Indian stock market.
Oil prices will likely keep INR’s upside limited
The recovery move in the Indian Rupee on Thursday will likely prove to be short-lived as intensified Middle East energy supply risks are fuelling oil prices.
In the opening trade, the MCX Crude Oil contract expiring on August 19 trades 1.75% higher at around Rs. 8,570, the highest level seen in over six weeks.
Currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs, tend to underperform in a high oil price environment.
Earlier in the day, Yemen’s Iran-aligned Houthis carried out missile and drone strikes on two Saudi oil tankers in the Red Sea on Wednesday – naming one as the Encelia – as part of a maritime blockade on the kingdom amid the US-Iran war, The Guardian reported.
FIIs remain net sellers on Wednesday
There seems to be a sense of caution among Foreign Institutional Investors (FIIs) toward the Indian stock market amid surging energy prices. On Wednesday, FIIs turned out to be net sellers, offloading their stake worth Rs. 819.20 crore.
So far this month, foreign investors have remained overall net sellers and have reduced their stake worth Rs. 4836.95 crore.
Technical Analysis: USD/INR stays above 20-day EMA
USD/INR trades marginally lower at around 96.53 in the opening session, but holds a bullish near-term bias as it trades above the 20-period exponential moving average (EMA), which is at 95.8764.
The Relative Strength Index (RSI) at 64.10 stays in positive territory but below overbought levels, suggesting firm upward momentum without yet signaling exhaustion.
On the downside, immediate support is located at the 20-period EMA at 95.88, which reinforces the broader constructive structure while it remains intact. Looking up, the all-time high at around 97.10 is the key resistance level.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Indian Rupee FAQs
The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of Crude Oil (the country is highly dependent on imported Oil), the value of the US Dollar – most trade is conducted in USD – and the level of foreign investment, are all influential. Direct intervention by the Reserve Bank of India (RBI) in FX markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are further major influencing factors on the Rupee.
The Reserve Bank of India (RBI) actively intervenes in forex markets to maintain a stable exchange rate, to help facilitate trade. In addition, the RBI tries to maintain the inflation rate at its 4% target by adjusting interest rates. Higher interest rates usually strengthen the Rupee. This is due to the role of the ‘carry trade’ in which investors borrow in countries with lower interest rates so as to place their money in countries’ offering relatively higher interest rates and profit from the difference.
Macroeconomic factors that influence the value of the Rupee include inflation, interest rates, the economic growth rate (GDP), the balance of trade, and inflows from foreign investment. A higher growth rate can lead to more overseas investment, pushing up demand for the Rupee. A less negative balance of trade will eventually lead to a stronger Rupee. Higher interest rates, especially real rates (interest rates less inflation) are also positive for the Rupee. A risk-on environment can lead to greater inflows of Foreign Direct and Indirect Investment (FDI and FII), which also benefit the Rupee.
Higher inflation, particularly, if it is comparatively higher than India’s peers, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, leading to more Rupees being sold to purchase foreign imports, which is Rupee-negative. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates and this can be positive for the Rupee, due to increased demand from international investors. The opposite effect is true of lower inflation.
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