The Indian rupee had an eventful week, reaching a historic low against the US dollar. This week's movement was not just about the price but also the complex interplay of various factors. The rupee's performance was influenced by trade negotiations, tariffs, portfolio outflows, and the Reserve Bank of India's (RBI) approach to managing volatility.
Let's dive into the details of this week's events and what they mean for the future of the USD/INR exchange rate.
Where the INR-USD Exchange Rate Ended Last Week (Dec 8-14, 2025)
The rupee closed at ₹90.4150 per $1 on Friday, marking a weekly decline of around 0.5%. This decline was notable as the rupee hit a new all-time low of ₹90.55 during the week, which pushed the USD/INR pair to record highs.
USD/INR Last Week: Day-by-Day Price Action (Dec 8-12)
Monday, Dec 8: The rupee started the week on a weak note, closing at ₹90.07 per $1. Traders expected continued pressure due to weak flows, and all eyes were on the upcoming US Federal Reserve decision and any potential progress on the US-India trade front.
Tuesday, Dec 9: The rupee rebounded slightly, closing at ₹89.8750. This move was attributed to modest inflows and exporter sales, but the overall sentiment remained bearish due to trade uncertainty and capital movement concerns.
Wednesday, Dec 10: The market was more volatile than the closing numbers suggest. USD/INR moved within a range of 89.77-90.08, ending the day at ₹89.9650. Traders were awaiting the Fed's decision, which loomed large over the market sentiment.
Thursday, Dec 11: The rupee hit a new record low of ₹90.4675, later closing at ₹90.3675. This move was driven by corporate outflows and near-term dollar payments, which overwhelmed the supportive impact of the post-Fed dollar move. Traders anticipated RBI intervention to limit further declines.
Friday, Dec 12: USD/INR pushed to a fresh all-time high of ₹90.55, and the rupee closed at ₹90.4150, ending the week with a 0.5% decline. This week's movement solidified the market's expectation of a gradual weakening of the rupee, with central bank action potentially keeping volatility in check.
What Drove USD/INR Higher Last Week (and INR/USD Lower)
Trade Headlines and Tariff Uncertainty: The absence of a clear breakthrough in US-India trade negotiations and the impact of steep US tariffs on Indian goods were key factors. The market was sensitive to any news related to trade negotiations and tariffs, which influenced the rupee's performance.
Portfolio Outflows and Corporate Dollar Demand: The market was weighed down by portfolio outflows and near-term corporate dollar payments. These factors can overwhelm positive macro news when they occur in concentrated bursts.
RBI's Posture: The RBI is intervening to smooth volatility, but not aggressively enough to reverse the trend. Their approach is more about 'leaning against the wind' rather than defending a specific exchange rate level.
The Fed's Decision: The US Federal Reserve cut rates by 25 basis points, but the market interpreted this move as more restrained than expected. The Fed also communicated liquidity management steps, which impacted the dollar's movement. However, these actions did not alleviate the rupee's domestic and flow headwinds, keeping USD/INR elevated.
India's Low Inflation: India's November retail inflation was reported at 0.71%, which is exceptionally low. This low inflation rate keeps the conversation about easy monetary policy and liquidity support active. While lower inflation can support growth, in the FX market, it also feeds into expectations of lower yield support for the currency.
Regional Story: The rupee's underperformance became a regional story, with Reuters describing it as Asia's worst-performing currency this year, down more than 5% against the dollar. The sharp divergence versus the Chinese yuan was also noted, including a record low against the CNY.
News and Analysis Highlights from Dec 8-14
RBI's liquidity operations are expected to be a key focus next week. The RBI announced a $5 billion USD/INR buy/sell swap auction on Dec 16, which could inject approximately ₹45,000 crore of rupee liquidity into the system. Additionally, the RBI's OMO bond purchases, with a second tranche of ₹50,000 crore on Dec 18, will be closely watched.
Analyst projections varied significantly. Standard Chartered expected pressure to persist, forecasting the rupee to weaken to 93 per $1 over the next 12 months. Jefferies projected the rupee to hover around 90 per $1 over the next 6-12 months. MUFG held a more constructive view, seeing USD/INR potentially settling below 90 next year. BMI (Fitch Solutions) projected around ₹90/USD by the end of December 2025 and roughly ₹90.5/USD in 2026. Bank of America warned of a potential 'five-channel' macro shock but also saw scope for the rupee to strengthen to 86 per $1 by the end of 2026 if conditions stabilize and the trade issue is resolved.
Upcoming Week (Dec 15-19): 6 Catalysts That Could Move USD/INR
RBI's $5 billion FX swap auction on Dec 16: Markets will watch the demand strength, the implied premium, and whether it changes the RBI's daily stance in the spot market.
RBI's second OMO tranche on Dec 18: Traders will observe the demand strength and its impact on money-market conditions.
Trade Headlines: Even small headlines related to trade and tariffs can quickly move market sentiment. If markets sense a path to de-escalation, USD/INR could stabilize or retrace. If not, the 'grind higher' story continues.
Dollar Direction after the Fed: Traders will monitor whether the dollar remains soft or rebounds, as USD/INR has recently been more reactive to India-specific flows than the broader dollar movement.
Oil and Import Demand: Brent crude was around $61.7 during the period, which is helpful for India's external balance but only one factor influencing USD demand.
Flows and Positioning: Once a major psychological level breaks, hedging behavior changes. Importers tend to hedge more, exporters may hold back, and traders become more sensitive to stop-loss cascades.
Practical 'Base Case' Scenario for the Upcoming Week
- Bias: Mildly weaker INR (higher USD/INR), unless trade headlines improve.
- Volatility: Likely managed by RBI activity, especially if moves become disorderly.
- Key Risk: A renewed push to fresh highs if flows remain negative and hedging demand accelerates.
Why Forecasts Differ So Much Right Now
The spread between the various forecasts is ultimately a debate about the speed of the US dollar cycle and whether the trade/tariff shock is temporary or structural.
Bottom Line: What Last Week Tells Us About Next Week
Last week demonstrated that once the 90 level was decisively breached, USD/INR could quickly reprice to new records, even when the global dollar narrative softened briefly. For the upcoming week, the rupee's path will likely depend on the RBI's liquidity events and trade headlines, against the backdrop of a post-Fed dollar market influenced by rates and liquidity management.
Stay tuned for more updates and analysis on the USD/INR outlook!
