USD/INR extends losses amid geopolitical risks, higher oil prices, and a 33% chance of a July Fed rate hike.
The Indian Rupee extended losses against the US dollar as escalating US-Iran tensions disrupted Strait of Hormuz traffic, pushing oil prices higher. The geopolitical risk triggered a repricing of Fed rate hike expectations, with markets now pricing a 33% chance of a July increase and 39 bps of tightening in 2026.
Traders are focusing on tomorrow’s US CPI report and Fed Chair testimony, with heightened sensitivity to inflation data. A softer CPI may not ease pressure due to Middle East risks, while a hotter print could spark broad risk-off sentiment. The Rupee’s correlation with oil prices has tightened, amplifying its decline.
Markets are expected to remain defensive or rangebound ahead of the CPI release, with geopolitical developments and Fed policy signals driving near-term volatility.