The Indian rupee continued to trade under pressure, opening in the 85.82–85.84 range on Thursday according to one-month non-deliverable forwards, a slight improvement from Wednesday’s close at 85.90. Despite the early uptick, the rupee has posted losses in six of the past seven sessions, slipping beyond the psychologically key 86 level on Wednesday.
Traders remain cautious about whether the mild recovery will hold. “The rupee should find relief from its downtrend,” said a currency trader at a Mumbai-based bank, “but whether that opening move has any follow-through or holds is doubtful.”
According to the trader, the dollar/rupee pair now has a support zone between 85.70 and 85.75, while resistance is seen in the 86.00–86.10 range. He added that the current technical bias favors a breach above 86.00–86.10 rather than a sustained decline below the support zone.
Dollar Weakens on Soft U.S. Data
The U.S. dollar slipped against major global currencies on Wednesday and extended its decline versus most Asian currencies on Thursday. The retreat followed the release of weaker-than-expected U.S. data, reinforcing market speculation that the Federal Reserve could lower interest rates as early as September.
Private sector employment in the U.S. rose by only 37,000 in May, significantly below economist expectations. At the same time, the Institute for Supply Management (ISM) reported an unexpected contraction in the U.S. services sector, raising fresh concerns about the health of the American economy.
Notably, the ISM’s measure of prices paid for services inputs surged to 68.7 in May, its highest level since November 2022, up from 65.1 in April — a sign that inflationary pressures may be persisting despite broader economic slowdown.
Growing Concerns Over U.S. Economic Outlook
In a daily note, Morgan Stanley highlighted that the combination of slowing private payrolls and the ISM data points to a potential stagflation scenario — where inflation remains elevated even as growth weakens. The bank noted that private payroll growth has been gradually slowing since Q4 2024, reinforcing signs of labor market softening.
“Concerns around the U.S. economic outlook mounted after the data, pushing U.S. yields and the dollar lower,” Morgan Stanley said.
While markets are now more confident that the Fed may move toward easing in September, the likelihood of a rate cut this month remains low, with policymakers still balancing inflation risks against signs of economic cooling.
