INR vs USD: Rupee drops amid strong dollar; 5 key reasons that may keep INR under pressure

INR vs USD: The rupee continued its downward trend for the third consecutive session, depreciating by 10 paise to reach 90.44 against the US dollar during early trading on Friday. This decline was influenced by a continuous outflow of foreign investments and a strong dollar. However, lower crude oil prices and a positive sentiment in the equity market helped to cushion the fall of the domestic currency, according to forex traders, as per Reuters news report. In the interbank foreign exchange market, the rupee began trading at 90.37 but soon fell further to 90.44 against the dollar, which is 10 paise lower than the previous day's closing level. On Wednesday, the rupee decreased by 11 paise to finish at 90.34 against the US dollar, following a drop of 6 paise the day before. 5 key reasons that may keep INR under pressure Strong US dollar The US dollar reached a six-week peak following surprising strong labor market data. For the week ending January 10, initial jobless claims in the US decreased to 198,000, marking the second-lowest figure in almost two years, and significantly lower than the anticipated increase to 215,000. The data conveyed a straightforward message — the US economy remains resilient. This bolstered market confidence that the Federal Reserve is not inclined to lower interest rates soon, which kept the dollar well-supported. As a result of the dollar's strength, emerging market currencies, including the rupee, experienced increased pressure. Hawkish US Fed comment The rupee will face challenges against a dollar bolstered by indications of a strong US labor market and stern remarks from the US Federal Reserve officials. On Thursday, US Fed representatives adopted a predominantly hawkish approach focused on inflation, with many indicating that any potential rate reductions would depend on consistent advancements toward the 2% inflation goal, as per reports. India's Trade Deficit December India’s merchandise trade deficit slightly increased to $25.04 billion in December from $24.53 billion in November, as imports rose slightly. Although the shift was minimal, a larger trade gap indicates more dollars exiting than entering the economy — a gradual yet consistent strain on the rupee, particularly when capital inflows are sluggish. Delay in India-US trade deal India is on the verge of finalising significant trade deals with both the US and the European Union, as stated by Commerce Secretary Rajesh Agrawal. Although no specific timeline has been provided for the India-US trade agreement, advancements seem to be consistent. While these negotiations might not lead to immediate market shifts, they foster a foundation for long-term confidence — the kind that the rupee subtly requires. "Rupee movements will depend on many events like the outcome of the US-India trade agreement, foreign portfolio capital flows and India’s trade deficit. A favourable outcome from the US-India trade deal can strengthen the rupee since that can reverse FII outflows too," said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd. Further, Rahul Kalantri, VP Commodities, Mehta Equities Ltd, said that the Indian Rupee’s outlook remains weak in the absence of any progress on a US–India trade agreement. Persistent selling in domestic equities and a rise in crude oil prices due to geopolitical tensions are capping any meaningful recovery in the currency. FPI Outflows Foreign investor sentiment remains a significant obstacle. Since the beginning of the year, Foreign Portfolio Investors (FPI) have been net sellers, disposing of Indian equities worth ₹19,015 crore in January alone. As long as confidence does not improve and foreign investment does not return, the rupee is at risk. During this time, every surge in the dollar feels more burdensome, and any attempt to recover encounters obstacles. INR Outlook MD – Amit Pabari, CR Forex Advisors said that USD/INR is likely to face strong resistance in the 90.30–90.50 zone. A sustained break above this area could open the path toward 91.20–91.50. On the downside, 89.50 remains a key support. “For now, the rupee walks a narrow bridge — supported by the RBI below, tested by the dollar above, and guided by sentiment that is still waiting to turn,” said Pabari. According to VK Vijayakumar, rupee in H1 2026 is likely to hover around 88-91 level. On similar lines, Rahul Kalantri added that he expects rupee to remain volatile this week amid volatility in the dollar index, volatility in the domestic equity markets and geo-political tensions and a pair could trade in the range of 89.20-91.40 in near terms. Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.