Rupee Strengthens Slightly in Cautious Trade Before Inflation Figures

The Indian rupee saw a modest gain in Tuesday’s session, ending at 87.6425 per U.S. dollar, up from the previous close of 87.6600. The move, while limited, signals a tentative return of buying interest in the currency after several weeks of pressure. The day’s trading was largely driven by investor positioning ahead of a crucial set of inflation reports—both domestic and international.

The marginal appreciation in the rupee came amid easing forward premiums and expectations of muted near-term volatility. With Consumer Price Index (CPI) releases from both India and the United States due within the next 48 hours, market participants exercised caution, curbing aggressive bets on either side of the currency pair.

Market Drivers: Easing Premiums and Inflation Anticipation

Forward premiums, which reflect the cost of hedging foreign exchange exposure, continued their decline for a second straight session. According to traders, the six-month annualized forward premium fell to 1.62%—the lowest level since February 2022.

This shift reflects declining expectations for aggressive policy divergence between the Reserve Bank of India (RBI) and the U.S. Federal Reserve, as well as less demand for long-term hedges among exporters.

India’s own CPI is expected to show consumer inflation easing to its lowest level in eight years, driven by cooling food and fuel prices. Meanwhile, U.S. inflation data—scheduled for release later in the week—is widely seen as a market-moving event that could determine whether the Fed continues its rate-hike cycle into the end of the year.

Technical Perspective on the USD/INR Pair

The USD/INR pair remains firmly within a broad 87.40–87.90 range. Today’s close below 87.65 marks a minor shift in sentiment but is unlikely to spark a sustained move unless followed by a significant surprise in inflation data.

Traders are watching for a break below 87.40 to confirm rupee strength, which could open the door to testing 87.10. On the flip side, a rebound above 87.85 would suggest renewed dollar demand and could push the pair back toward the record high of 87.95 touched earlier this month.

RBI’s Role in the Background

Though the RBI was not seen intervening directly in the market today, its recent presence has been a stabilizing force, particularly during rupee sell-offs in early August. The central bank has been actively managing both the spot and non-deliverable forward (NDF) markets, helping prevent speculative runs on the currency while keeping volatility contained.

Additionally, India’s robust foreign exchange reserves—last reported at $651.2 billion—give the RBI ample ammunition to counter any disorderly moves stemming from global shocks or adverse inflation readings.

Market Outlook: All Eyes on the CPI Doubleheader

With Indian CPI data expected later today and U.S. CPI figures due tomorrow, traders and institutional investors remain on the sidelines. The inflation doubleheader is likely to set the tone for not only the USD/INR trajectory but also broader emerging market currency trends in the coming weeks.

A softer-than-expected U.S. inflation print could reduce the likelihood of further Federal Reserve rate hikes, potentially offering support to emerging market currencies like the rupee. Conversely, hotter inflation could revive dollar strength and weigh on regional currencies.

Conclusion

The Indian rupee’s slight gain on August 12, 2025, reflects cautious optimism among market participants ahead of a pivotal period for global macroeconomic data. With forward premiums falling and volatility subdued, the market appears to be in a holding pattern until inflation data provides direction. The Reserve Bank of India’s watchful presence continues to underpin stability, while technical traders eye critical levels for signs of trend confirmation.