The Indian Rupee (INR) remained flat against the US Dollar (USD) around 85.80 during European trading hours on Friday, stabilizing after the Reserve Bank of India’s (RBI) unexpected aggressive monetary easing. The RBI cut the repo rate by 50 basis points to 5.5%, a move larger than the widely anticipated 25 bps reduction, with a notable 5-1 vote split as policymaker Saugata Bhattacharaya favored a standard cut.
In addition to the repo rate cut, the RBI slashed the Cash Reserve Ratio (CRR) by 100 basis points to 3%, unlocking an estimated Rs. 2.5 lakh crore of liquidity into the banking system to boost lending.
RBI Governor Sanjay Malhotra justified the jumbo cut as necessary to revive economic growth, stating, “Front-loading rate cuts to support growth were felt necessary.” The central bank revised its inflation forecast for FY26 downward to 3.7% from 4.0%, though cautioned that inflation’s “last mile” remains sticky. Concurrently, the RBI shifted its policy stance from “accommodative” to “neutral,” signaling the next monetary move could be either a hike or a cut.
This surprise easing is expected to widen the policy divergence with other major central banks, potentially pressuring the INR in the near to medium term.
US NFP Data to Influence USD/INR Dynamics
The USD/INR pair’s sideways movement also reflects calm US Dollar trading ahead of the highly anticipated US Nonfarm Payrolls (NFP) report due at 12:30 GMT. The US Dollar Index (DXY) holds near 98.80, buoyed by expectations that the Federal Reserve may cut rates as soon as July.
Recent data, including a disappointing ADP employment report and an unexpected drop in the Services PMI for May, have pushed the odds of a July Fed rate cut to 32.8%, up from 22.5% last week, according to the CME FedWatch tool.
However, Fed officials remain cautious. Kansas City Fed President Jeff Schmid warned that tariffs could drive inflation higher for an extended period, with their full impact yet unclear. He added optimism that economic activity can be maintained despite these pressures.
The upcoming NFP report is expected to show an increase of 130,000 jobs in May, below April’s 171,000. The unemployment rate is forecast to remain steady at 4.2%, while average hourly earnings are projected to grow 3.7% year-on-year, slightly slower than the previous 3.8%.
Market optimism returned late Thursday after US President Donald Trump expressed confidence in renewed trade negotiations with China, calling recent talks “a very positive conclusion for both countries.”
Technical Outlook: USD/INR Holds Key Support Levels
Technically, USD/INR maintains a bullish near-term trend by holding above the 20-day Exponential Moving Average (EMA) at approximately 85.47. The 14-day Relative Strength Index (RSI) hovers near 60, with a breakout above this level potentially fueling further upside momentum.
On the upside, the pair could test an 11-week high near 86.70 after surpassing the May 22 peak of 86.10. Key support lies at the June 3 low of 85.30; a breach here might expose the pair to the May 26 low at 84.78.
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