The Indian Rupee (INR) has stopped its three-day drop against the US Dollar (USD), recovering slightly after reaching a three-month low. This bounce-back is due to a weaker USD and falling crude oil prices amid the ongoing Israel-Iran conflict. Currently, USD/INR is approximately 86.60, down from recent highs but still up over 0.50% for the week. Core sector growth in India has slowed to 0.7% in May, a significant drop from 6.9% the previous year.

Stock Market And Crude Oil

The 30-share BSE Sensex climbed 1.29%, finishing at 82,408.17, while the NSE Nifty50 also rose by 1.29%, closing at 25,112.40. Brent Crude prices have dropped by over 2% but are still expected to finish the week up by about 4%. In June, the Reserve Bank of India cut the repo rate by 50 basis points to support growth during uncertain global conditions. The forecast for India’s Consumer Price Index (CPI) inflation for FY26 has been adjusted to 3.7% from 4%, with May’s retail inflation hitting a 75-month low of 2.82%. The US Dollar Index has fallen to around 98.75 as traders rethink safe-haven demands. Upcoming PMI data for India and the US will be closely observed, with signs that USD/INR might pause its downward trend. The recent rebound in USD/INR, after a three-day decline of the rupee, is largely due to a falling USD, which is influenced by changing safe-haven interests. As crude oil prices ease, especially with tensions in West Asia currently stable, currency markets might adjust their expectations. Those tracking market trends should note that while the INR’s position is below the week’s highs at 86.60, it still maintains a solid weekly gain. Singh’s move to lower the repo rate by 50 basis points seems aimed at countering weak demand. This action, paired with falling inflation rates—especially May’s inflation at 2.82%—indicates that liquidity will remain favorable for some time. However, lower rates do not guarantee an immediate pickup in economic activity. The base effect is clear when examining core sector growth, which shows just 0.7% in May this year compared to 6.9% last year.

Investor Sentiment And Economic Indicators

It’s essential to consider how Dalal Street reacted. The 1.29% gains in both Sensex and Nifty50 suggest optimism, even amidst mixed global signals. Such significant increases often indicate expectations of capital inflows, which can typically strengthen the local currency. While not always perfectly aligned, this correlation should not be overlooked when considering future market volatility. One area often missed is oil. Despite Brent’s 2% drop, it still shows a week-to-date increase of around 4%. We need to evaluate whether this movement is driven by commodity trends or geopolitical pricing. If higher-risk scenarios are poorly priced in the futures market, the Rupee could face pressure, especially on days when global risk sentiment dips. Regarding PMI data, there’s not much time until the next release. These figures will be insightful beyond mere headline statistics; the details, especially around input costs and export orders, could provide better guidance on immediate inflation and trade trends. If either India or the US surprises with their data, volatility could increase, impacting option pricing more than expected. The situation in the US has also shifted slightly, with the US Dollar Index at 98.75. This marks a significant change, influencing trading habits as yields and monetary policy expectations are reassessed. The focus is now not just on positioning, but also on future Federal Reserve actions and their effects on global capital flows. If US data points to weaker outcomes, traders might favor emerging market currencies, especially those with positive real rates. In this environment, managing short-term exposures requires a narrow focus—filtering out the noise and closely examining event probabilities. This is especially important as confidence in key data has widened. For those involved in derivatives or INR-linked FX pairs, caution is advised. Maintain tight hedges when possible and stay aware of shifts in domestic sentiment driven by state actions. Create your live VT Markets account and start trading now.

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