INR/EUR Outlook:
Bearish, as the rate is below its recent average and near recent lows, pressured by key economic factors.
Key drivers:
- Rate gap: The Reserve Bank of India's flexible exchange rate policy contrasts with the European Central Bank’s stable interest rates, widening the disparity in monetary policy.
- Risk/commodities: Oil prices are currently elevated, impacting India's current account due to its dependence on crude imports and consequently putting pressure on the INR.
- Weak manufacturing exports: India's struggle with weak export growth, particularly in manufacturing, continues to inhibit the INR's strength amid global demand challenges.
Range:
The INR/EUR is likely to drift within its recent trading range, lacking momentum to test extremes.
What could change it:
- Upside risk: A significant rebound in global demand for Indian exports could boost the INR.
- Downside risk: Further geopolitical tensions or a substantial rise in U.S. interest rates may exacerbate pressure on the INR.