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  • Writer's pictureSieracki Milosz

USD/INR Decline Due to Anticipation of Dovish Fed Policy: Factors & Analysis

USD/INR: Anticipation of Dovish Fed Policy Extends Losses

Dollars and India Rupee on market charts

Among the many currency pairs, USD/INR is often in the spotlight due to its relevance to both the United States and India. Recently, this currency pair has been on a downward trajectory, extending its losses over three consecutive days. In this article, we'll delve into the factors behind this decline, including the anticipation of a dovish Fed policy in September and the impact of the Gift Nifty on the Indian Rupee (INR).

Anticipating a Dovish Fed Policy

The USD/INR pair has been trading lower, currently hovering around 82.80, primarily due to the increased likelihood of the US Federal Reserve (Fed) maintaining interest rates at their current levels during the upcoming September meeting. This anticipation of a dovish Fed policy has put downward pressure on the US Dollar (USD).

Investors and traders are closely watching the Fed's actions and statements, seeking any clues about future monetary policy. The central bank's decision on interest rates can have a significant influence on currency markets, including USD/INR.

Moreover, there is speculation in the market that the Fed may implement a 25 basis point (bps) interest rate hike by the end of 2023. This hawkish stance taken by the central bank could potentially provide support for the USD/INR pair in the medium term.

The Gift Nifty Effect

On the other side of the equation, the Gift Nifty has been a key player in bolstering the Indian Rupee (INR). The Gift Nifty is a dollar-denominated futures contract based on the Nifty 50 index, and it has been trading higher around 19985.0. This rise in the Gift Nifty's value has had a positive impact on the INR.

Investors and market participants are also closely monitoring the actions of the Reserve Bank of India (RBI). The RBI's decisions and statements can significantly affect market stability and investor confidence, making it an essential factor in the USD/INR equation.

US Treasury Yields and the Greenback

While the USD is under pressure from the anticipation of a dovish Fed policy, there's another factor at play that could support the Greenback. The US Dollar Index (DXY), which measures the USD's performance against six other major currencies, currently trades lower around 104.70.

However, improved US Treasury yields are providing support to the USD's strength. The yields on 10-year US Treasury bonds have risen to 4.29%, showing a 0.70% increase at the time of writing. These higher yields make US assets more attractive to investors, potentially bolstering the USD.

Favorable Labor Market Data

In addition to the improved Treasury yields, favorable labor market data is contributing to the resilience of the US dollar. The US Initial Jobless Claims data for the week ending September 2 revealed a figure of 216K, surpassing market expectations of 234K and coming in lower than the revised figure of 229K from the previous week. This data suggests a healthy labor market, which can be a driving force for the USD.

Confidence in Managing Inflation

US Treasury Secretary Janet Yellen, following her participation in the G20 Summit, expressed confidence in the United States' ability to handle inflation without causing significant harm to the job market. She noted that "Every measure of inflation is on the road down," indicating an expectation for a decline in various inflation indicators.

Aiming for Economic Equilibrium

Chicago Fed Bank President Austan Goolsbee has articulated the US Federal Reserve's objective to guide the economy onto a "golden path." This path represents a situation in which inflation decreases without triggering a recession, a challenging equilibrium that central banks frequently strive for to maintain economic stability and growth.

Looking Ahead: Inflation Data

As we move forward, investors will be closely monitoring the release of the Consumer Price Index (CPI) for August from both the US and India. These datasets, scheduled for release later in the week, are expected to provide valuable insights into the inflation scenarios of both economies. The outcome of these reports could significantly influence investor decisions regarding the USD/INR pair.

usd inr 11-09-2023 Trading View BlackBull Market

In endnote, the USD/INR currency pair is facing downward pressure due to the anticipation of a dovish Fed policy. However, the rise in the Gift Nifty and improved US Treasury yields could provide some support to the US Dollar. Favorable labor market data and confidence in managing inflation add to the complex dynamics at play. As investors await the release of inflation data, the future trajectory of USD/INR remains uncertain, making it a key pair to watch in the world of forex trading.


1. What is the USD/INR currency pair? The USD/INR currency pair represents the exchange rate between the United States Dollar (USD) and the Indian Rupee (INR). It reflects how many Indian Rupees are needed to purchase one US Dollar.

2. Why is the USD/INR pair facing downward pressure? The USD/INR pair is facing downward pressure due to the anticipation of a dovish policy by the US Federal Reserve (Fed), which could keep interest rates unchanged.

3. What is the Gift Nifty, and how does it affect the INR? The Gift Nifty is a dollar-denominated futures contract based on the Nifty 50 index. Its rise has a positive impact on the Indian Rupee (INR) as it makes Indian assets more attractive to investors.

4. How do US Treasury yields influence the USD? Improved US Treasury yields make US assets more appealing to investors, which can support the strength of the US Dollar (USD).

5. Why is favorable labor market data important for the USD? Favorable labor market data, such as lower jobless claims, indicates a healthy labor market and can bolster confidence in the US Dollar (USD).

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