USD/INR retreats as US Dollar refreshes three-year low, India's CPI rose moderately

• USD/INR falls back as the US Dollar Index posts a fresh three-year low.
• The Indian retail CPI rose at a moderate pace of 2.82% in May.
• Washington will likely extend the 90-day tariff deadline for some of its trading partners.

The Indian Rupee (INR) recovers most of its early losses against the US Dollar (USD) during European trading hours on Thursday as the latter underperforms across the board. Although the Indian currency has stabilized against the USD, it has depreciated against its other peers as the domestic Consumer Price Index (CPI) data for May has come in softer than projected.

The Ministry of Statistics and Programme Implementation has reported that inflationary pressures rose at a moderate pace of 2.82% on year, compared to estimates of 3% and the prior release of 3.16%. This is the lowest level seen since April 2019. Signs of decelerating inflationary pressures encourage RBI officials to endorse further monetary policy expansion.

In last week’s policy meeting, the RBI changed its stance from “accommodative” to “neutral”, stating that there is little room for further policy-easing after front-loading interest rate cuts. The Indian central bank slashed its Repo Rate by 50 basis points (bps) to 5.5% and reduced Cash Reserve Ratio (CRR) by 100 bps to 3%.

Foreign Institutional Investors (FIIs) have also appeared to be cautious ahead of the inflation data, which resulted in a small sale of Indian equities worth Rs. 446.31 crores on Wednesday.

Meanwhile, the World Bank slashed India’s economic growth forecasts for FY26 by 40 bps to 6.3% on Tuesday. Still, the institution expects the nation to be the fastest-growing world’s largest economy. The bank cited weaker export activity amid global trade barriers as the key reason behind the downward revision in economic growth.

Daily digest market movers: Indian Rupee gains ground against US Dollar

• The Indian Rupee claws back early losses and stabilizes around 85.55 against the US Dollar during the European session. The USD/INR pair faces selling pressure as the US Dollar continues to face the backlash from uncertainty surrounding the United States' (US) tariff policy. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, tumbles to near 97.80, the lowest level seen in over three years.
• Market experts struggle to gauge the likely outcome of new economic policies announced by US President Donald Trump upon his return to the White House, due to his erratic statements on the tariff structure.
• On Wednesday, US President Trump signaled while responding to reporters at the Kennedy Centre that he could extend the 90-day tariff deadline, which is scheduled to expire on July 8. 
• “Willing to extend trade deadlines but won't need to,” Trump said. US Treasury Secretary Scott Bessent also told the House Tax’s writing committee that the tariff pause could be extended for 18 countries that are negotiating in “good faith”, according to CNBC.
• The comments from Donald Trump came after he stated that he will send trade letters to countries within 1-2 weeks, saying, “This is the deal, you can take it or you can leave it.”
• On the economic front, investors await the US Producer Price Index (PPI) data for May, which will be published at 12:30 GMT. The producer inflation data is expected to show that business owners raised prices of goods and services at their premises. Prior to the day, the Consumer Price Index (CPI) report for May showed that price pressures grew at a moderate pace, which indicates that the impact of Trump’s tariff policy has not yet started feeding into the economy, or business owners released inventory accumulated ahead of the reciprocal tariff announcement.
• Meanwhile, the Federal Reserve (Fed) is unlikely to lower interest rates until officials gain clarity on the likely consequences of Trump’s economic policies.

Technical Analysis: USD/INR strives to hold 20-day EMA

The USD/INR attracts bids near its weekly low of around 85.47 on Thursday. The pair rebounds after sliding below the 20-day Exponential Moving Average (EMA) earlier in the day, which trades around 85.48.

The 14-day Relative Strength Index (RSI) hovers inside the 40.00-60.00 range, indicating a sideways trend.

Looking down, the June 3 low of 85.30 is a key support level for the major. A downside break below the same could expose it to the May 26 low of 84.78. On the upside, the pair could revisit an over 11-week high around 86.70 after breaking above the May 22 high of 86.10.