Indian Rupee falls as US Treasury Yields hit fresh two-decade high near 5.3%

The Indian Rupee (INR) declined against the US Dollar (USD) on Thursday after a previous day's rise. This decline occurred as US Treasury yields surged, bolstering the USD/INR pair to reach near 95.93. As of the report, the 10-year US Treasury yield neared 5.31%, the highest level in two decades. Higher yields on US bonds make riskier assets less attractive, including the Indian Rupee.

US Federal Reserve officials have repeatedly warned of persistent inflation risks due to supply shocks in the energy sector. Yesterday, Fed Governor John Williams delivered a notably hawkish message, with an FXS Speechtracker score of 7.1, which is higher than the typical 6.2. This signals concerns over inflation remaining above 3% and suggests growth might be more resilient than anticipated, supporting the Dollar.

The FXS Fed Sentiment Index fell by 0.42 points to 143.28, indicating a slight decrease in hawkishness despite the speech's strong tone. The index remains well above the 100 neutral line, indicating a clearly hawkish Federal Reserve. Policymakers are worried about energy supply shocks following receding fears of US-Iran diplomacy since President Trump denied reports of sanctions relief.

The next major event for the US Dollar is the Nonfarm Payrolls (NFP) data release for September, scheduled for Friday. Investors will closely monitor this data, as it will influence market expectations of the Fed's monetary policy stance. Currently, the CME FedWatch tool suggests a 62.4% probability that the Fed will maintain interest rates unchanged during the upcoming meeting.

The chance of the Fed keeping rates steady in October has increased from 29% a week earlier. Meanwhile, the ADP Employment Change figures released on Wednesday showed a strong private sector job creation of 90K, higher than the estimated 70K and the August figure of 36K. Later in the day, attention will shift to the US ISM Manufacturing Purchasing Managers’ Index (PMI) for September, expected to be 55.0, up from 54.6 in August.

In the daily chart, USD/INR is trading at 95.9705, maintaining a mildly bullish near-term bias as it stays above the 20-day exponential moving average (EMA) at 95.7263. The pair is supported by this short-term trend indicator, with the Relative Strength Index (RSI) at 59.59 remaining in positive territory, signaling potential upside pressure while still respecting short-term support.

On the downside, the immediate technical floor is at the 20-day EMA at 95.7263, where a dip-buying interest could materialize if the pair retreats from the current levels. As long as USD/INR holds above this EMA on a closing basis, the structure favors further consolidation with a slight upside bias. However, a decisive break below the average would weaken the bullish tone and expose a deeper corrective phase.