What caused the recent decline in market expectations for a Federal Reserve rate hike in July, and how did it affect the Indian rupee?

The decline in market expectations for a July Federal Reserve rate hike was driven by softer-than-expected U.S. inflation data for June, which led markets to scale back near-term tightening expectations; this cooling of Fed hike bets provided relief to the Indian rupee and other Asian currencies, helping offset pressure from surging crude oil prices. Specifically, the probability of a 25-basis-point Fed rate increase at the July meeting fell to 16.6% from 41.7% a day earlier, according to CME Group's FedWatch tool, and Citi Research noted that the cool June inflation, slowing core PCE, and softer jobs data ruled out a July hike — a development that supported risk assets and stabilized the rupee despite its underlying weakness.

Why is the Indian rupee under persistent pressure despite central bank intervention, and what role is crude oil playing?

The Indian rupee is under persistent pressure due to renewed U.S.-Iran hostilities triggering a sharp rise in crude oil prices — Brent crude climbed to near $86 a barrel in Asia trading, up from roughly $70 two weeks earlier — and this surge is weighing heavily on the currency despite dollar sales by the Reserve Bank of India in both spot and non-deliverable forward markets; as one bank currency trader observed, while higher oil prices are a key factor, 'there appears to be more weighing on the rupee than just crude,' indicating broader fragility reflected in the currency weakening past 96 per dollar on Tuesday even with intervention.

Rupee Finds Support from Cooling Fed Hike Bets, Unrelenting Crude Surge a Drag

Jul 14, 2026

Softer U.S. inflation data supports the Indian rupee, though rising crude oil prices driven by Middle East tensions remain a drag. Brent crude surged to nearly $86 per barrel, complicating currency stability despite reduced Federal Reserve rate hike expectations.

reuters

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