The week of October 5–11, 2025, delivered a challenging cocktail of global financial news, dominated by divergent central bank policies and significant political headwinds. The US Dollar (USD) became the centerpiece of Forex volatility, reacting sharply to the release of the Federal Reserve’s latest meeting minutes and the persistent uncertainty surrounding the US government shutdown. Simultaneously, the Indian Rupee (INR) drew attention as the Reserve Bank of India (RBI) intensified its intervention efforts in the Non-Deliverable Forwards (NDF) market, signaling a fierce commitment to managing currency stability amidst ongoing tariff pressures.
Forex Volatility Explodes as Dollar Reacts to the 4.0% Fed Rate 💥
1. The Federal Reserve’s Crucial October Stance: The 4.0% Rate Divide
The primary driver of currency movement (Forex Volatility) this week was the lingering aftermath of the Federal Open Market Committee (FOMC) meeting in late September, whose minutes were released mid-week.
Rate Cuts and the “Neutral” Rate Debate
The Fed, in an 11-1 vote, had already implemented a critical 25-basis point rate cut, bringing the Federal Funds rate down to a range of 4.00%–4.25%. The accompanying minutes revealed a significant division within the committee:
- Majority View: Most policymakers supported the cut and indicated that further easing would likely be appropriate this year, conditional on inflation continuing its downward trend and labor market risks persisting. This dovish tilt immediately put selling pressure on the USD index (DXY).
- Dissenting Voices: The minutes highlighted that a few members expressed a preference for keeping rates unchanged, citing persistent inflation above the 2% target. Furthermore, newly appointed Governor Stephen Miran, the lone dissenter, argued for a more aggressive 50-basis point reduction, claiming the ‘neutral rate’ of interest has been structurally pushed lower by US trade and fiscal policies.
The Shutdown Effect and Powell’s Speech
Adding to the complexity, the US government shutdown, which began on October 1st, drastically delayed the release of key economic data, including the Non-Farm Payrolls (NFP) and CPI figures. This created a “data vacuum,” forcing traders to rely on commentary. On October 9th, Fed Chair Jerome H. Powell delivered a speech at the Community Bank Conference. While the speech itself was aimed at the banking sector, markets were listening for any forward guidance. The consensus in the market is now pricing in a near 100% probability of another rate cut in October, driven by the desire to stimulate the economy despite the data freeze.
- Forex Impact: This dual-pressure environment—a dovish Fed signal mixed with political uncertainty—caused the USD Index (DXY) to enter a consolidation phase. While a weaker USD has been the medium-term trend, the sudden lack of data prevented a major sell-off, with the DXY trading sideways against major peers like the Euro (EUR) and British Pound (GBP).
2. The Indian Rupee: RBI’s Unstoppable Defense Against Tariffs
For Indian businesses, particularly those in the export-import sector like Shiv’s Assets Group, the stability of the Indian Rupee (INR) is absolutely essential. This week brought key insights into the RBI’s determined effort to manage the INR’s depreciation.
Intensified NDF Market Intervention
The RBI has significantly intensified its intervention activities in the offshore Non-Deliverable Forwards (NDF) market. This move is aimed at preventing a sharp decline in the Rupee, which has been under significant pressure since August and September, having breached the psychologically crucial 88.00/$1 mark.
- The Cause: Renewed depreciation pressure is directly linked to the US administration’s decision to increase tariffs on select Indian imports and sustained Foreign Portfolio Investor (FPI) outflows.
- The Mechanism: By adding short positions in the NDF segment, the central bank can influence the offshore market without draining domestic INR liquidity through spot interventions (selling dollars in the domestic market). This clever strategy, which avoids tightening domestic banking system liquidity, signals the RBI’s commitment to curbing excessive volatility without undermining domestic credit flow. The result: the Rupee stabilized, trading in a tight, managed range toward the end of the week.
The RBI Monetary Policy Backdrop
The RBI’s Monetary Policy Committee (MPC) had, earlier this month, maintained the Repo Rate at 5.50% with a ‘neutral’ stance. This decision was underpinned by an upbeat domestic GDP growth forecast (revised up to 6.8% for FY26) and a surprisingly benign inflation outlook (CPI revised down to 2.6% for FY26). The steady rate provides stability for borrowers, a positive for the real estate and manufacturing sectors, but the focus remains on external stability, which is clearly being managed through aggressive forex market action.
3. Global Market Movements: Euro and Yen Awkwardly Diverge
Global markets saw two other major currencies on divergent paths:
- Japanese Yen (JPY) Weakness: The JPY continued its persistent depreciation, slipping past the 152.00/$ level for the first time in months. This weakness was fueled by softer-than-expected wage growth data in Japan, which pushed back expectations for the Bank of Japan (BoJ) to hike interest rates. Analysts now widely expect the BoJ to delay any tightening, reinforcing the USD/JPY pair’s bullish trend toward the 155.00 level.
- Euro (EUR) Resilience: The Euro (EUR) showed unexpected resilience against the dollar, trading around the 1.1600–1.1700 range. European Central Bank (ECB) President Christine Lagarde, in a statement to the European Parliament on October 6th, highlighted the euro area’s economy has held up well, expecting growth to be 1.2% in 2025 with inflation stabilizing near the 2% target. This positive, if cautious, outlook helped the EUR absorb the USD’s volatility.
Source: RBI intensifies intervention in offshore market to stabilize rupee amid tariff pressures
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