On Tuesday, the Indian rupee further weakened against the US dollar, mainly due to the increase in foreign exchange demand from importers, especially energy companies. Indian companies began to increase their imports of crude oil from the United States, leading to an increase in market demand for the US dollar. The maturity settlement in the non deliverable forward (NDF) market has intensified the selling pressure on the rupee.

Since 2025, foreign investors have withdrawn nearly $15 billion from the Indian stock market, potentially surpassing the record of a net outflow of $17 billion set in 2022. This large-scale sell-off caused the market value of the Indian stock market to evaporate by about $1.3 trillion, exacerbating market anxiety.

The uncertainty of US President Trump's trade policy has affected emerging market currencies, including the Indian rupee. Due to global investors' concerns about the potential impact of US tariff policies on global trade flows, funds are flowing into safe haven assets.

This Wednesday, CPI data from India and the United States will be the focus of market attention, expected to have a significant impact on the US dollar and Indian rupee.

The market expects the US CPI to rise by 2.9% year-on-year in February, slightly lower than January's 3.0%. The core CPI is expected to increase by 3.2% year-on-year, slightly lower than January's 3.3%.

If the data is higher than expected, it may lower the market's bet on the Federal Reserve cutting interest rates, support the US dollar, and further suppress the Indian rupee.

India's February CPI is expected to be around 5.1%, close to the Reserve Bank of India's upper target of 6%. If inflation remains high, the Reserve Bank of India may maintain a tightening policy to alleviate the pressure of rupee depreciation.

The Federal Reserve's policy expectations are also affecting market sentiment. The non farm payroll (NFP) data for February in the United States was lower than expected, with only 151000 new jobs added and the unemployment rate rising to 4.1%. The market currently expects the Federal Reserve to cumulatively cut interest rates by 75 basis points in 2025 and initiate its first rate cut in June.

The Federal Reserve needs to stabilize inflation in order to achieve full employment. If inflation remains high, the pace of interest rate cuts may be affected. "- Mohammed El Erian, Chief Economic Advisor of Allianz

Although the Indian rupee is affected by the strengthening of the US dollar and foreign capital outflows, the Reserve Bank of India (RBI) may intervene in the foreign exchange market to stabilize the rupee exchange rate and limit its further depreciation. In addition, the decline in international oil prices may to some extent alleviate India's import cost pressure and reduce demand for the US dollar.

If RBI increases its market intervention efforts, the rupee may receive support around 87.00. If the expectation of the Federal Reserve cutting interest rates strengthens and the US dollar falls, the rupee is expected to rebound.

Editor's viewpoint:

Currently, the Indian rupee is weakening due to the strong US dollar, withdrawal of foreign investment, and trade concerns. The market is focused on the upcoming release of CPI data and the outlook for Federal Reserve policies.

If the expectation of the Federal Reserve cutting interest rates weakens and the US dollar strengthens, the rupee may further depreciate. If the Reserve Bank of India intervenes in the foreign exchange market, the rupee may receive some support.