The Indian rupee hovered around 95.4 per dollar, edging higher after steadying in the previous session as a pullback in oil prices offered some relief. Brent crude fell more than 2% on Thursday to around $86.50 a barrel, despite a US threat to maintain a naval blockade of Iranian ports indefinitely. However, persistent dollar demand from importers and maturities in the non-deliverable forward market continued to weigh on the rupee, while near-daily intervention by the Reserve Bank of India helped cushion its decline. Meanwhile, market participants assessed the RBI's proposed loan interest-rate framework, which could provide longer-term support by strengthening monetary-policy transmission and improving pricing transparency. The rules would link floating-rate personal and MSME loans to external benchmarks, including the RBI's repo rate, but would take effect only from April 2027 if finalized.
The euro has been trading around $1.15 in August, near two-month highs, as traders navigate shifting developments in the Middle East and conflicting signals over the prospects of a deal between the US and Iran, while also assessing the resulting rise in oil prices and its impact on inflation. In Europe, market-based measures of inflation expectations, reflected in swaps for the Euro Area over the next year, are around 2.4%, above the ECB’s 2% target. Eurozone inflation edged up to 2.9% in July. Meanwhile, the Euro Area economic outlook has improved, with recent resilience prompting analysts to become more optimistic about growth. The Eurozone economy expanded 0.4% in Q2, the strongest pace since early 2025 and growth is projected to moderate in the near term before gradually gaining momentum. As a result, investors expect the ECB to deliver another 25bps rate hike in September.
