INR/EUR Outlook: Bearish, as the rate is below its recent average and near recent lows, influenced by the widening trade deficit in India.
Key drivers:
• Rate gap: The Reserve Bank of India has been actively supporting the rupee, while European Central Bank policies remain stable, leading to a divergence in currency performance.
• Risk/commodities: With oil prices at 90-day highs, the Indian Rupee may face additional pressure as higher oil costs can contribute to further trade deficits for India.
• One macro factor: Capital outflows from India have intensified, with significant withdrawals by foreign investors contributing to the rupee's decline.
Range: The INR/EUR exchange rate is likely to drift within its recent range, as external pressures limit significant movement in either direction.
What could change it:
• Upside risk: If trade negotiations with the U.S. progress positively, this could boost investor confidence in the INR.
• Downside risk: Continued capital outflows or negative developments in the Indian economy could further weaken the rupee.
