• The Indian Rupee extends its advance against the US Dollar as the latter underperforms.
  • Fed’s Warsh stresses price stability and AI-driven demand.
  • The INR’s strength on the back of RBI’s measures could turn out to be short-lived.

The Indian Rupee (INR) continues to outperform the US Dollar (USD) on the back of weakness in the Greenback and forceful Reserve Bank of India’s (RBI) measures to curb the US Dollar’s demand by Oil Marketing Companies (OMCs).

As of writing on Friday, the USD/INR pair posts a fresh over five-week low at 94.69. In the European session, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to fresh 10-day low near 101.80.

The US Dollar extends its weakness on Friday, following remarks from Federal Reserve (Fed) Chair Kevin Warsh at the Fireside Chat with International Monetary Fund (IMF) Managing Director Kristalina Georgieva, in which he stressed achieving price stability, surging investment, and Artificial Intelligence (AI)-led structural growth.

Warsh flags investment surge and AI risks as Fed keeps options open into year-end

Fed Chair Warsh’s speech scores 5.6/10 on the FXS Speechtracker, modestly softer relative to the historical average of 6.1/10, reflecting a cautious tone despite upbeat comments on structural growth and an investment surge. The admission of being “over-scarred from the global financial crisis” underscores a bias toward vigilance on financial stability and tail risks, even as Warsh stresses that recent developments have broadly matched the Fed’s expectations and that key policy decisions will crystallize at the October and December meetings. Warsh’s focus on AI as a demand-side force and on field hearings and task forces signals an effort to build new intellectual capital before committing to a clearer policy path, keeping Dollar traders attentive to incoming data on output, employment, and inflation.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 127.51, consistent with hawkish territory despite the slightly softer speech score on the FXS Speechtracker. The lack of index movement suggests that Warsh’s remarks, while emphasizing caution and uncertainty around AI and tail risks, did not materially shift market perceptions of the Fed’s underlying hawkish stance into the remaining 2026 meetings.

As usual, Fed Chair Warsh has not delivered any meaningful remarks on the monetary policy outlook. Warsh has already stated explicitly that “so-called forward guidance” is not appropriate in the current scenario.

Meanwhile, financial markets remain confident that the Fed will leave interest rates unchanged at the October meeting, but will hike them in December, according to the CME FedWatch tool.

This week, the major trigger for a significant appreciation in the Indian currency remains RBI’s measures to curb the demand of the US Dollar. However, market experts doubt the sustainability of INR’s strength.

RBI steps steady INR but OCBC warns rebound may prove fleeting

Strategists at OCBC highlight that RBI’s measures of limiting access to certain INR non-deliverable derivatives to hedging purposes, extending the 20% cash reserve requirement to banks’ own qualifying FX hedges, and the special USD window for oil companies are merely a shift in demand of the currency from the spot market rather than a reduction in India’s underlying US Dollar requirements.

OCBC concludes that “we may still see room for some near-term INR gains, but the sustainability of the move will depend on whether portfolio outflows moderate and external pressures from oil prices and US yields ease.” For now, they judge that the latest policy steps “may help establish a firmer near-term footing for INR, rather than mark a decisive reversal in its broader depreciation trend.”

USD/INR Technical Analysis

In the daily chart, USD/INR trades below 95.00, keeping a bearish near-term bias as it remains below the 20-period exponential moving average (EMA) at 95.76.

The positioning under this key dynamic barrier suggests the recent slide is still in play, while the Relative Strength Index (RSI) at 32.51 hovers just above oversold territory, hinting that downside momentum is slowing but not yet reversing.

On the topside, immediate resistance is located at the 20-period EMA around 95.76, where any recovery would likely face initial selling pressure. On the downside, the September 3 low at 94.29 is the key support level.

(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.

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.