INR vs USD: How Jerome Powell's hint on Fed rate cuts may impact currency, bond markets on Monday

By Admin

23 Aug, 2025

US Federal Reserve Chair Jerome Powell’s latest remarks at the Jackson Hole symposium have sent ripples across global markets. His dovish tone hinted at a possible interest rate cut as early as the September Fed meeting, setting the stage for notable shifts in currency, bond, and equity markets.

What Powell Said at Jackson Hole

In his eighth and final Jackson Hole address as Fed Chair, Powell acknowledged that the Fed is in a “challenging situation” as it balances its dual mandate of stable prices and maximum employment.

• The jobs market is weakening faster than previously expected, though not at alarming levels.
  
  

• Inflation risks remain elevated, particularly with tariffs adding price pressures.
  
  

• The Fed’s policy rate is closer to neutral than it was a year ago, giving room for adjustments.
  
  

“Our policy rate is now 100 basis points closer to neutral than it was a year ago,” Powell said, signaling space for policy recalibration. He stressed that while inflation is still a concern, the shifting balance of risks could justify a softer stance.

Immediate Market Reaction

Markets were quick to respond:

• US benchmark 10-year Treasury yields crashed 1.7%.
  
  

• Dollar index slipped by about 1%.
  
  

• Equity indices such as Nasdaq, Dow Jones, and S&P 500 jumped up to 2%, reflecting optimism over a potential September rate cut.
  
  

The contrasting moves highlight how investors are already pricing in a shift in Fed policy.

What This Means for the Indian Rupee

A softer Fed policy generally weakens the US dollar, providing relief to emerging market currencies like the Indian rupee (INR). Analysts believe:

• The INR may gain strength on Monday, cushioned by dollar weakness.
  
  

• However, heavy dollar demand from importers and tariff-related uncertainties could limit the upside.
  
  

• The rupee has been hovering around ₹87.50, and while Powell’s remarks bring medium-term relief, short-term volatility is expected.
  
  

“A softer Fed usually weakens the dollar, and that should be good news for the rupee. But India’s reality is more layered,” said Ajay Kumar Yadav, CFP, Group CEO & CIO, Wise Finserv.

Impact on Indian Bond Markets

Indian bond markets may see a favorable reaction on Monday, with yields expected to soften as global liquidity improves.

• Lower US yields tend to attract foreign inflows into Indian debt markets.
  
  

• Investors are already net buyers of government bonds, anticipating easier policy conditions.
  
  

• Long-duration bonds, in particular, may offer capital gain opportunities.
  
  

Vishal Goenka, Co-Founder of IndiaBonds.com, said Powell’s hint could “help cushion the recent pressure on the rupee” and even open the door for the RBI to consider rate cuts if domestic growth slows.

Investor Outlook

For investors, the current scenario presents both opportunities and risks. While lower yields and stronger inflows may support Indian markets, tariff-led inflation pressures and import-driven dollar demand could temper gains.

Ajay Kumar Yadav suggested a barbell strategy, blending short-term and long-term papers to balance stability and upside potential.

The Road Ahead

With the Fed meeting on September 17 drawing closer, markets are bracing for policy shifts. Powell’s dovish signal offers near-term relief, but structural uncertainties around tariffs, inflation, and global growth remain. For India, the rupee may strengthen modestly while bond markets could benefit from foreign inflows, though volatility is likely in the weeks ahead.

Disclaimer: This blog is for educational purposes only. The views expressed are those of individual analysts and experts, not investment advice. Investors should consult certified professionals before making financial decisions.