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The Indian rupee looks set to recover as the US dollar loses strength, following President Trump's one-month pause on tariffs against Canada and Mexico.
What does this mean?
The weakening US dollar is providing an opportunity for the Indian rupee to bounce back after reaching record lows due to tariffs against key trading partners. Trump's decision to delay tariffs on Canada and Mexico has bolstered currencies like the Canadian dollar and Mexican peso, setting an optimistic scene for the rupee. Still, there's apprehension over potential tariffs on China, which could further influence the dollar. The dollar index has dropped to 108.70, benefiting offshore Chinese yuan and uplifting trends in Asian shares and US equity futures. Analysts at MUFG Bank warn this relief could be short-lived, as tariffs remain central to Trump's economic strategies.
Anticipations are growing that the Federal Reserve might refrain from implementing rate cuts in March, buoyed by an uncommon rise in US manufacturing activity over the last two years. Investors are vigilantly tracking currency movements and macroeconomic factors. The rupee forward is steady at 87.18 with a 20.5 paise onshore forward premium while the ten-year US note yield reached 4.57%.
The bigger picture: Economic chessboard set for strategic play.
Trump's postponement of tariffs on North American counterparts offers a critical window for currency stability. Yet, looming tariffs on China could have sweeping effects, shaking global market stability and influencing trade and central bank strategies. In the background, foreign investors demonstrated varied sentiments, selling $0.1 million in Indian equities but purchasing $33.8 million in bonds as per NSDL data from February 3.