Trump’s termination of a US-Iran MoU sparks oil price spikes, lifting Fed rate hike bets to 38 bps and pressuring the INR.
The Indian Rupee accelerated its decline against the USD after President Trump declared an end to the US-Iran Memorandum of Understanding, reigniting geopolitical tensions. Oil prices surged, stoking inflation fears and prompting markets to reprice Fed tightening expectations higher for July and year-end.
Fed rate hike probabilities for July rose to 34% from 25%, while total expected tightening by year-end increased to 38 bps from 30 bps. The INR’s drop reflects its renewed correlation with oil prices, reversing recent focus on Fed policy risks following the last FOMC decision.
The Rupee remains structurally bearish against the dollar, with escalating Middle East tensions amplifying downside pressure amid higher energy costs and shifting rate expectations.