The Indian rupee faces downward pressure this week. Trade tariff risks and a strong U.S. dollar continue to impact the Indian rupee. On Friday, the rupee closed at 87.4250, marking a nearly 1% drop for the week. This was its worst weekly performance since December 2022.
Several factors contributed to this decline. Concerns over a global trade war and foreign investment outflows added pressure. Additionally, expectations of a domestic interest rate cut pushed the rupee to a lifetime low of 87.5825 last week.
The Reserve Bank of India (RBI) reduced interest rates on Friday. This was the first rate cut in nearly five years. Despite the decision, bond yields rose as investors had anticipated additional liquidity measures.
Meanwhile, U.S. President Donald Trump announced plans to impose reciprocal tariffs on multiple countries. Although he did not specify the targets, this announcement strengthened the dollar. Indian Prime Minister Narendra Modi is set to meet Trump on Wednesday, and trade discussions will be a key topic.
On Friday, the U.S. unemployment rate fell to 4%. This reinforced expectations that the Federal Reserve will not rush to cut interest rates. According to MUFG Bank, strong labor market conditions and trade uncertainties will likely support the dollar.
Traders will closely watch Federal Reserve Chair Jerome Powell’s remarks on Tuesday. Additionally, U.S. consumer price inflation data, set for release on Wednesday, will influence the dollar’s movement. A stronger dollar could put further pressure on emerging market currencies, including the rupee.
The Indian bond market reacted to recent developments. On Friday, the benchmark 10-year bond yield ended at 6.7043%, up by 5 basis points. Traders expect the yield to remain within the 6.65%-6.75% range this week.
Investors were disappointed by the lack of additional liquidity measures from the RBI. Some market participants had expected a cut in the cash reserve ratio (CRR) or other liquidity infusion steps. While no such announcements were made, they remain a possibility in the near future.
Tariff risks keep the Indian rupee under pressure while bond yields react to U.S. inflation data. Stay informed on the latest Forex trends.
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