Trade View: INR stages recovery

After rallying by ~1% on Wednesday, USD/INR traded below the 88.00 level yesterday. The sharp movement in the pair was attributed to significant intervention by the RBI. The intervention probably came as a response to the central banks’ view of building speculative attacks on the rupee. Going forward, we expect USD/INR to trade in the range of 87.50-89.0. Any positive outcome on the trade deal could lead to some appreciation bias in USD/INR and the pair could breach the lower bound of our forecast range.

 US bond yields: US  10Y bond yield dropped below 4% level yesterday weighed by risk-off sentiments in the stock market. The sell-off in the stock market was triggered by concerns over loose lending practices in the banking sector as two regional banks disclosed bad loans tied to fraud allegations. At the time of writing, US 10Y was trading at 3.95%

 US shutdown which is in its third week has resulted in an indefinite halt of economic data release from federal agencies. The lack of economic data from the US has not stopped the market from pricing in expectations that the FOMC will deliver two additional rate cuts this month and in December. As per CME Fedwatch tool, market assigns 96.8% probability for a rate cut in October and 81.2% probability for a 25-bps rate cut in December. 

 EUR/USD was trading at 1.171 at the time of writing. The pair strengthened as political uncertainty in France settled as Prime Minister Sebastien Lecornu survived two no-confidence votes in parliament. He is likely to be able to deliver a budget in the coming days. Lecornu had earlier this week pledged to suspend President Emmanuel Macron’s pension reforms that has been a major point of contention. In the near term, we expect the pair to trade in the range of 1.16-1.18. 

Fedspeak: Federal Reserve Governor Christopher Waller called for 25-bps rate cut to support the cooling labour market. On the other hand, Fed Governor Stephen Miran continued to advocate for a larger reduction as the recent US-China trade tensions present more downside risk to economic growth.

 USD/INR strengthened to 87.82 yesterday. We expect USD/INR to trade in the range of 87.50-89.00 in the near-term. 

 India 10Y bond yield closed higher at 6.50% yesterday as traders booked profits as MPC minutes opened space for further rate cuts from the RBI.  

System Liquidity: The liquidity stood at a surplus of INR1.30 lakh crore as on 15th October 2025.  In view of the increased liquidity demand (reporting Friday), RBI has announced 3-day VRR auction of INR 50,000 cr today.

Trade View: INR stages recovery