Rupee surges as Trump attacks Fed and soft US data sinks dollar

The Indian Rupee staged a powerful comeback on Thursday, closing stronger at 85.70—its firmest level in over a month—thanks to a perfect storm brewing against the U.S. dollar. The Dollar Index tumbled to 97.30, marking a fresh three-year low, and giving emerging market currencies like the INR some much-needed oxygen.

But what triggered this sudden collapse in the Greenback? Speaking at a NATO press conference in The Hague, U.S. President Donald Trump launched a scathing attack on Fed Chair Jerome Powell, calling him “terrible” and “very political.”

He didn’t stop there—he even floated the possibility of replacing Powell before his term ends in May 2026. The remarks, unprecedented in tone, have unnerved global investors who are now questioning the independence of the Federal Reserve—a cornerstone of U.S. economic credibility.

Markets responded swiftly, with the dollar weakening significantly, creating room for the rupee to appreciate.

"On the data front, the U.S. GDP shrank by 0.5% in Q1 2025, worse than the earlier estimate of a 0.2% decline. The contraction was driven by faltering exports and subdued consumer spending, while a sharp rise in imports suggested panic stockpiling ahead of expected tariffs. The negative revision has cemented concerns about an economic slowdown, adding further weight to the dollar’s troubles," said Amit Pabari, MD, CR Forex.

Meanwhile, back home, the RBI is stepping in to mop up excess liquidity. "A ₹1 lakh crore VRRR auction is lined up for today, aimed at absorbing surplus cash (currently at ₹2.44 lakh crore). This liquidity tightening, by effectively limiting the supply of rupees, could provide additional support to the currency, enhancing its resilience in the near term," said Pabari.

He added that the central bank’s proactive stance could offer a crucial buffer if external volatility spikes.

But it’s not all smooth sailing. "With the RBI’s short-dollar forward positions still elevated, at $72.5 billion in April, down from $84.3 billion in March, continued dollar buying to manage forward maturities may help anchor the rupee around the 85.40–85.60 support zone. On the upside, resistance is likely near the 86.20–86.40 levels, as a potential rebound in the dollar could exert fresh depreciating pressure on the rupee," added Pabari.

In short, while global cracks are helping the rupee breathe, its future will depend heavily on how long the Fed crisis drags on—and how swiftly the RBI plays its cards.