Rupee rises to two-week high as dollar weakens on Trump-Fed rate cut talk

Trump's remarks on Powell spur Fed rate cut hopes; rupee hits over two-week high at 85.71, though gains capped by RBI intervention via PSU banks

The rupee appreciated sharply on Thursday, tracking a decline in the dollar index after US President Donald Trump suggested that Federal Reserve (Fed) Chair Jerome Powell could soon be replaced, fanning expectations of a rate cut as early as July. The remark sparked concerns over the future independence of the Fed, said dealers.

 

The local currency appreciated to 85.63 per dollar during the day before settling at 85.71 against the greenback, its highest level since June 12 this year. Market participants said the Reserve Bank of India (RBI) intervened in the foreign exchange market via dollar purchases, which capped gains.

 

“The RBI was buying dollars via public-sector banks at the 85.63-85.65 per dollar level after the rupee’s appreciation in the morning,” said a dealer at a state-owned bank. “The dollar index was down, and there were some inflows too, helping the rupee. Foreign banks were on the buying side (rupee) on Thursday.”

 

The dollar index fell 1.18 per cent to 97.15 in Asian trading, reaching its lowest level since March 2022, as it extended a sharp decline this week. The drop was partly credited to fading safe-haven demand after a US-mediated ceasefire between Iran and Israel appeared to be holding. Losses deepened after Trump criticised Powell and called for more aggressive rate cuts. Powell, in his testimony, maintained a cautious stance on policy easing and warned that Trump’s proposed tariffs posed an inflationary risk that could delay action by the central bank. 

 

The dollar index measures the strength of the greenback against a basket of six major currencies.

 

“There is resistance around the 85.5 per dollar mark, and the RBI will also be there to shore up its reserves,” said a market participant. “We see an appreciation bias for now; the probability of a rate cut in the US will take the dollar index lower.”

 

The rupee has depreciated by 0.2 per cent against the dollar in the current financial year (2025-26), while it has seen a 0.1 per cent depreciation in the current calendar year (2025).

 

“There were two reasons — one being the broad-based weakness in the dollar and foreign institutional inflows of around ₹15,000 crore to ₹16,000 crore due to ongoing initial public offerings and some sentiment-driven flows because of news about the State Bank of India’s (SBI’s) qualified institutional placement (QIP),” said a market participant.

 

SBI is preparing to raise up to ₹25,000 crore through a QIP — its first equity offering in eight years — to bolster its Common Equity Tier 1 capital. The announcement has been well received by the market, spurring increased interest from foreign investors.