Fundamental Overview

US Dollar

The US dollar weakened broadly on Tuesday following reports suggesting an imminent US-Iran nuclear agreement. The sell-off began when Qatari mediators indicated that draft language for a potential US-Iran deal had been prepared.

Selling pressure intensified after US Treasury Secretary Bessent confirmed that an agreement with Iran could have been reached as early as yesterday and would have included the reopening of the Strait of Hormuz. The Strait of Hormuz is one of the world's most critical oil transit chokepoints, with roughly a fifth of global oil consumption flowing through it, making its status a key variable for energy prices and, by extension, inflation-linked currency expectations.

The dollar's losses began to narrow late in the session, likely because the expected timeline for an announcement passed without one. Nonetheless, optimism surrounding a potential deal is expected to keep the greenback under pressure unless geopolitical tensions escalate again. Reduced Middle East risk typically diminishes safe-haven demand for the dollar, which tends to benefit during periods of elevated uncertainty.

Looking ahead, the next major catalyst is the US CPI report due next week. The inflation data will be pivotal for the September FOMC decision and the Jackson Hole Symposium, the annual gathering where the Fed Chair traditionally signals the near-term policy trajectory to markets. A hotter-than-expected reading would likely spark a dollar rally as traders increase bets on further rate hikes. Conversely, a softer report should further diminish expectations of Federal Reserve tightening and add to downward pressure on the currency.

Indian Rupee

The Indian Rupee extended its gains on Tuesday after both Qatari mediators and US Treasury Secretary Bessent signaled that a deal with Iran was close at hand and would involve reopening the Strait of Hormuz. India imports the vast majority of its crude oil, so any easing of supply-chain risk through the Strait directly affects its import bill and trade balance, making the rupee particularly sensitive to Hormuz-related developments.

Those gains eventually faded, likely because the anticipated timeline for the deal elapsed without a formal announcement. Additionally, the Reserve Bank of India (RBI) left the repo rate unchanged at 5.25%, maintaining its neutral policy stance. Governor Malhotra emphasized a data-dependent approach, stating that the central bank is neither hawkish nor dovish. The absence of hawkish forward guidance likely added to the rupee's pullback, as a steady rate with no tightening bias does little to widen the interest-rate differential that supports the currency against the dollar.

In the broader context, the Indian Rupee remains in a structural bearish trend against the US dollar. Dip-buyers are expected to continue seeking opportunities near strong technical support levels, aiming to push the USD/INR pair toward new highs.

USD/INR Technical Analysis

Daily Timeframe

On the daily chart, USD/INR bounced from the key 95.10 support zone as buyers entered with defined risk below that level, positioning for a rally back toward the 96.10 resistance. Sellers would need a decisive break below 95.10 to open the path toward the 94.00 handle.

4-Hour Timeframe

On the 4-hour chart, price is breaking above the downward trendline that had been defining the bearish momentum. Buyers are expected to increase bullish positions around current levels, with defined risk below the trendline, targeting the 96.10 resistance. Sellers, meanwhile, will need to wait for a break below the 95.10 support before gaining conviction for a move to new lows.

1-Hour Timeframe

On the 1-hour chart, a minor upward trendline is defining the current momentum. On any pullback, buyers will likely lean on this trendline with defined risk below it to continue pushing toward new highs. Sellers will want to see price break below both the trendline and the support level to mount a push toward the 94.00 handle.

Upcoming Catalysts

Today brings the latest US Jobless Claims figures. Tomorrow, the week concludes with the release of the US Non-Farm Payrolls (NFP) report, a key input for Fed policy expectations that feeds directly into the dollar's trajectory against emerging market currencies including the rupee.