The Indian Rupee (INR) weakened slightly on Monday following its largest weekly gain in nearly 17 months. The decline was influenced by the softness of the US Dollar (USD) after the US administration opted not to impose tariffs on key trading partners, which had previously bolstered the INR. Additionally, interventions by the Reserve Bank of India (RBI) in the foreign exchange market and decreasing crude oil prices provided some support against further losses.
However, the INR faced selling pressure due to renewed USD demand from importers and outflows from Foreign Portfolio Investors (FPIs) in the Indian stock market. Concerns regarding a potential economic slowdown in India further contributed to the downward trend. Market participants are particularly focused on the upcoming decision from the US Federal Reserve on interest rates, which is expected to remain unchanged. Insights from the subsequent press conference regarding the Fed’s outlook for interest rates will be crucial for traders.
In recent economic indicators, the HSBC Manufacturing Purchasing Managers Index (PMI) for India recorded an increase to 58.0 in January, up from 56.4 in December, indicating a positive start for the manufacturing sector. Conversely, the Indian Services PMI decreased to 56.8 in January, down from 59.3, and the Composite PMI fell to 57.9 from 59.2. Nevertheless, the improvement in new export orders and a decline in input cost inflation signal favorable conditions for manufacturers.
On the other side of the globe, the US economic data showed mixed results. The S&P Global Composite PMI fell to 52.4, while the Manufacturing PMI climbed to 50.1. However, the Services PMI decreased to 52.8, below market expectations. Existing Home Sales in the US rose by 2.2% month-on-month in December, reflecting a trend in the housing market.
As the INR trades in negative territory today, the USD/INR pair remains within a descending triangle pattern and is currently supported above its 100-day Exponential Moving Average (EMA). The technical outlook suggests a potential resumption of the uptrend, especially if the pair surpasses the key resistance level of 86.69, which could set the stage for a move towards 87.00. Conversely, breaching the initial support at 86.14 could lead to further declines toward 85.85 and 85.65.
