Dollar Interventions Spark Indian Rupee Surge Amid US-Iran Tensions

The US dollar sold off across the board in the final part of last week due to a combination of factors, including the Federal Reserve's FOMC rate decision and heavy dollar-selling flows triggered by interventions from Japan and South Korea. The losses extended on Friday when reports confirmed that the US Treasury participated in the intervention for the first time since 2011.

US Treasury Secretary Janet Yellen stated that she would not hesitate to conduct more joint interventions with Japan's Ministry of Finance in the future. Given the recent drop in USD/JPY, there is a low probability of another intervention in the near-future, and the greenback should go back trading on fundamentals.

The Indian Rupee has benefited from the lack of major hawkish surprises at the FOMC decision, heavy US dollar-selling flows, and positive US-Iran headlines. However, going forward, the Rupee will need a dovish repricing for Fed interest rate expectations and further de-escalation in the Middle East to extend its gains.

The Reserve Bank of India (RBI) is expected to keep the repo rate unchanged at 5.25% on Wednesday, maintaining its neutral stance. The RBI may deliver a cautious or slightly hawkish tone, signaling that continued global volatility or sustained spikes in crude prices could force rate hikes in the second half of FY27.