Dollar Surges, Rupee Stumbles: What's Driving FX Markets Now
Global FX markets shifted in July as the USD gained on trade deals, the British pound climbed, and the Indian rupee weakened on tariff fears. Here’s what’s driving currencies now.
Currency markets are seeing renewed volatility as trade deals, tariffs, and central bank interventions reshape the landscape. Here’s a summary of the most important developments affecting exchange rates this week.
USD Gains on Trade Deal Optimism
The U.S. Dollar Index recorded its first monthly rise since December, climbing 2.1% in July. The move followed a new U.S.–EU trade agreement and reduced tariffs on European imports. Additional trade pacts with Japan, Indonesia, and the Philippines also lifted sentiment and countered deglobalization fears.
Canadian Dollar Weaker On Cautious Bank of Canada
The Canadian dollar (CAD) is currently facing pressure as it trades above 1.38 against the U.S. dollar (USD), driven by a cautious Bank of Canada (BoC) and a more aggressive Federal Reserve. Analysts note that without significant Canadian economic data on the horizon, the loonie's movements may closely mirror fluctuations in oil prices, which have recently shown signs of recovery.
Recent geopolitical developments are contributing to the uncertainty surrounding the CAD. The political landscape in Canada has shifted, with Prime Minister Mark Carney taking office amidst significant upheaval. Trade tensions with the U.S. remain elevated following tariff impositions on Canadian steel and aluminum, which could weigh on economic prospects and the CAD's performance.
Sterling Strengthens
The British Pound surged above $1.35 as investors turned risk-on after the U.S.–Japan trade deal, but has since dropped back to 1.33 by month end. Any move higher for GBP supports importers and UK travelers, though exporters may feel margin pressure.
Indian Rupee Under Pressure
The Indian Rupee slid to around ₹86.5 per USD amid speculation of 20–25% U.S. tariffs on exports. Foreign portfolio outflows and falling forex reserves (down over $1 billion last week) added to the strain, prompting RBI intervention to slow further declines.
Pakistan FX Crackdown
The Pakistani government has shuttered several informal FX markets, briefly strengthening the Pakistani Rupee from ~288.6 to ~286 per USD. However, much black-market trading has shifted online via encrypted apps, adding volatility risk for cross-border businesses.
UBS Scales Back Risky FX Products
Following client losses tied to dollar swings, UBS has restricted sales of Range Target Profit Forwards (RTPFs), signaling a broader review of high-risk FX derivatives used by corporate clients.
IMF Upgrades Growth Forecasts
The International Monetary Fund raised its global growth projection to 3.0% for 2025 (3.1% for 2026), citing a weaker dollar and reduced tariff burdens that have eased debt pressures on emerging markets.
What This Means for You
- Stronger USD and GBP benefit importers but could hurt revenues for those paid in foreign currencies.
- Rupee and Pakistani currency volatility adds risk for South Asian trade and investments.
- Sign up for the BER Rate Tracker to receive alerts when your preferred currency pairs move.
- Be cautious with complex FX hedging products—simple tools like multi-currency accounts may offer safer flexibility.
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