The Indian Rupee (INR) opened slightly higher against the US Dollar (USD) on Friday, with the USD/INR pair ticking lower to near 96.55, though it remains close to its all-time high of 97.00 [1]. This modest recovery for the Rupee comes amid a corrective move in US Treasury yields, as the 10-year US Treasury yield fell by 0.23% to around 5.22% after failing to extend its rally above the two-decade high of 5.36% [1]. The pullback in yields was triggered by a combination of factors, including a decline in oil prices following US President Donald Trump's remarks expressing optimism on US-Iran diplomacy and stating, “We will not be attacking Iran at any time prior to the Midterm Elections to be held in the United States on November 3rd,” and that “We are having productive discussions with the Islamic Republic of Iran” [1][2].
The Reserve Bank of India (RBI) is reported to have intervened in the currency market, likely selling US Dollars to support the Rupee near its record-low levels, according to a Reuters report cited by fxstreet [1]. On the domestic policy front, the RBI raised its key policy rate by 25 basis points this week and shifted its monetary policy stance from “neutral” to “calibrated tightening,” signaling that rate cuts are off the table in the near term [1]. Investors are now awaiting India’s Consumer Price Index (CPI) data for September, scheduled for release on Monday [1]. Societe Generale projects that headline CPI inflation will rise sharply to 5.6% year-over-year in September from 4.8% in August, driven by food inflation, which is expected to reach around 7.5% year-over-year. Core CPI inflation is also anticipated to approach 4.5% year-over-year [1].
Analysts at Danske Bank caution that the longer-term uptrend in US bond yields is likely to persist, citing continued significant investment from hyperscalers and expectations of further interest rate hikes by the Federal Reserve. The bank warns of the risk that 10-year and 30-year US Treasuries could hit 6% as investors demand a higher premium for the long end, reflecting concerns that term premia may need to rise further to clear upcoming issuance [1].
While the immediate pullback in US yields has provided some relief for risk-sensitive assets like the Indian Rupee, the broader trend remains uncertain. The scenario of a pause in US bond yields theoretically improves the appeal of riskier assets, but the underlying factors supporting higher yields—such as supply dynamics and Fed policy—remain in place [1].
CONCLUSION
The Indian Rupee found short-term support from a correction in US Treasury yields and likely intervention by the RBI, but remains vulnerable near record lows. With the RBI adopting a more hawkish stance and inflation expected to rise, the outlook for the Rupee will depend on both domestic data and the trajectory of US yields. Market participants should remain cautious as the longer-term uptrend in US yields and global monetary policy divergence continue to pose risks.