Rupee May Weaken Further as Global Dollar Strengthens; Bonds Watchful of Rate Cut Hopes

The Indian rupee is expected to stay under pressure this week as the US dollar shows signs of recovery. At the same time, the bond market will focus on possible interest rate cuts by India’s central bank.

On Friday, the rupee ended at 86.1475 against the US dollar, down 0.4% for the week. Traders believe the rupee will move between 85.80 and 86.70 in the short term, with a slightly weaker trend.

The US dollar index has gained 1.5% so far in July, after falling for five straight months. Strong economic data and higher prices due to tariffs have made traders rethink the chances of US rate cuts. The market now sees a 53% chance of a rate cut in September, according to CME’s FedWatch tool.

Investors are waiting to hear from US Federal Reserve Chair Jerome Powell, especially since President Donald Trump has criticized him for not cutting rates sooner.

Back home, India’s ongoing trade talks with the US and earnings results from Indian companies may impact foreign investment in stocks. IFA Global, a forex advisory firm, suggests importers hedge near Rs.86 and exporters at Rs.86.25.

In the bond market, India’s 10-year benchmark bond yield ended last week at 6.3058% and is expected to move between 6.28% and 6.33%. Yields may rise as the government sold Rs.30,000 crore worth of bonds recently.

Attention is also on retail inflation, which hit a six-year low in June. If inflation drops further in July, it could lead to another interest rate cut. The Reserve Bank of India recently withdrew Rs.2 trillion from the banking system, and traders are watching for further liquidity moves.

Meanwhile, the rupee closed around 86.20 on Friday, affected by foreign fund outflows and a strong dollar. Gold and silver prices stayed firm amid global uncertainty and high oil prices. The rupee’s link with the Nifty50 index also rose, while volatility dropped to 4.2%, hinting at a weak but stable trend.