INR/EUR Outlook: Slightly weaker, but likely to move sideways as the rate is below its recent average and near its low end.
Key drivers:
- Rate gap: The Reserve Bank of India is actively intervening in the market, while the European Central Bank is maintaining a steady monetary policy, which supports the euro against the rupee.
- Risk/commodities: With oil prices hitting recent highs, the demand for the euro could benefit, given the eurozone's proximity to energy markets and its impact on inflation.
- Current Account Deficit: India's widening trade deficit, driven by high gold imports and U.S. tariffs, is pressuring the INR.
Range: The INR/EUR is likely to drift within a limited range as recent volatility has not resulted in significant recoveries.
What could change it:
- Upside risk: A notable improvement in U.S.-India trade relations could bolster the INR.
- Downside risk: Continued capital outflows from Indian equities would increase pressure on the rupee.
