FX – WEEKLY UPDATE :

Weekly SYNOPSIS: 06/06/2025

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Currency Map:

Currency Pairs	WEEK CLOSE	PRIOR WEEK CLOSE	% change
USD/INR	85.68	85.48	0.23
EUR/INR	98.11	96.94	1.20
GBP/INR	116.25	115.14	0.96
JPY/INR	59.55	59.36	0.32

Brent Crude closed at USD 66.50 VS previous week close of USD 63. Gold closed at USD 3310. Nifty closed at 24750 vs prior month close of 25003. 10 Year G-SEC Yield is now at 6.23%.

Major developments: USDINR traded in the 85.31-86.02 range last week, and Rupee declined 0.23% against USD w/w. EUR climbed 1.20% m/m and GBP climbed 0.96% m/m against Rupee.

Indian benchmark Equity indices climbed 1.02% w/w. 10 Year G-SEC Yield closed at 6.23%.

1-year fwd premia is at 1.90% p.a.

FX reserves stood at USD 691.4 bn, as on May 30 th. Reserves declined US D 1.23 bn w/w.

In June, FII’S have  sold Rs 3745 Cr of Indian Equities and sold Rs 620  cr of debt.

RBI cut repo rates by 50 bps in a surprise move and also announced CRR cut from 4% to 3%. CRR cut would be done in a staggered manner from Sept. Both these measures would boost liquidity, reduce interest costs and could boost demand. GDP is expected to be 6.5% in FY 25-26 and inflation is expected to be below 4%. Global tariff uncertainty and moderation in Indian FY 24-25 growth along with inflation slow down would have pushed RBI to cut rates faster than anticipated. Since stance has been changed to neutral, incoming data would decide future monetary action.

RBI sold USD at higher levels, to stem any possible decline due to rate cuts. Equity markets cheered the news. Rupee also subsequently gained to 85.63, before ending at 85.68 on Friday.

GST collections rose 16.4% y/y to 2.01 lac Cr. India’s April core sector output growth slowed to 0.5%, the lowest in eight months.

Rupee continued to show signs of modest decline, contrary to global FX movement. USDINR is bound in the 85-86 range. Decisive break of 86.10 could spur USDINR to 87+ levels. However, it is unlikely to breach this year’s high of 87.95 any time soon. Expect 86.25 to be an average level for this year.

Hedging advise: Exports can be hedged on rally to 86, till 86.10 is not broken on the upside. Imports be covered at 85.15.

Global developments:  US non-farm payroll employment rose 139k in May, above expectation of 130k. That’s slightly below average monthly gain of 149k over the prior 12 months. Unemployment rate was unchanged at 4.2%, matched expectations. Participation rate fell from 62.6% to 62.4%.Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom.

With labor market remaining strong and price rise inevitable due to tariffs, Fed would hold on till Sept.

US ISM(mfrg) was subdued and recorded the lowest level since Nov. ISM noted that the PMI reading still corresponds to roughly +1.7% real GDP growth on an annualized basis.

US and China agreed to start formal talks again after Trump-XI phone call. Optimism around trade talks and better than expected employment data aided further rally in US Equities. However, US 10 Year yield climbed to 4.5%. USD rebounded marginally on Friday.

If US-China and US-EU trade talks provide solutions, USD may rally back to 1.0950 against Euro during this year.

ECB lowered deposit rate by 25bps to 2.00% as widely expected. The central bank cited “exceptional uncertainty,” and its commitment to a data-dependent, meeting-by-meeting approach, refraining from offering forward guidance on the future path of interest rates.

In the updated economic projections, ECB now expects headline inflation to average 2.0% in 2025 and 1.6% in 2026—down 0.3 percentage points from March’s forecast. ECB projects real GDP to expand by 0.9% in 2025, 1.1% in 2026, and 1.3% in 2027. While the 2025 GDP forecast remains unchanged due to a strong first quarter, ECB acknowledged that the remainder of the year looks weaker, in part due to trade-related uncertainty. Weak global demand and potential retaliation to US tariffs could continue to drag on exports and business investment. 

ECB Chairwoman downplayed immediate trade war fallout, stating that U.S. tariffs would likely impact growth more in 2026, by which time EU fiscal expansion—particularly military spending—would help cushion the blow. Also, she emphasized that the ECB is well positioned to respond to prevailing uncertainties. There was no explicit signal of a pause in the easing cycle, but the emphasis on a “meeting-by-meeting” approach suggests the ECB will tread carefully going forward.

ECB members indicated rate cut pause after Thursday’s rate cut. They said that markets should not expect rate cut in every meeting and work on inflation mgt is almost done.

OECD revised its global growth forecasts downward. It now sees world GDP expanding just 2.9% in both 2025 and 2026, citing increased trade barriers and lingering policy uncertainty as key drags.

UK manufacturing activity remained in contraction in May, with PMI finalized at 46.4, up modestly from April’s 45.4. Eurozone PMI manufacturing was finalized at 49.4 in May, up from April’s 49.0 and marking the highest level in 33 months.

Currency technical levels: USDINR: 85.45/85.15 (Supports), 86 (resistance),

EURINR:96.80/96.10(Support), 98.50 (Resistance)

GBPINR: Supports: 114.60( supports), Resistance:117-118(Resistance).

JPYINR: Resistance:61 Supports: 58.70/57.20 (support).

Hedging advise: USDINR receivables be hedged on rally to 85.95/86 and payables be hedged at 85.20.