TODAY Tuesday,5th August, 2025

USD/INR:

The Indian rupee may drop past 88 to the U.S. dollar to an all-time low on Tuesday after U.S. President Donald Trump threatened steeper tariffs on Indian goods, worsening fragile sentiment and stoking concerns of more foreign outflows.The 1-month non-deliverable forward indicated the rupee  will open in the 88.00 to 88.04 range versus the U.S. dollar, down from 87.6550 on Monday. The rupee’s previous record low was 87.95, touched in February.

Trump again threatened to substantially raise tariffs on Indian goods, citing India's continued purchases and resale of Russian oil. India’s foreign ministry responded, saying it will take all necessary steps to protect its national interests and economic security. Whether these barrage of comments are mainly negotiating tactics against India to partly prod for changes in the Russia-Ukraine war remains to be seen. Trump had already imposed higher-than-expected 25% tariffs on Indian imports last week, while U.S. officials continue to highlight multiple hurdles that are delaying a trade deal with India.

Sentiment on the rupee has been fragile due to the hefty tariffs on Indian goods. On Monday, the pressure intensified, with the rupee falling despite the dollar weakening broadly. On Monday, the rupee failed to hold on to an intraday recovery to near 87.20.

MAJOR WORLD CURRENCIES:

USD:

The U.S. dollar wavered on Tuesday as the rising odds of Federal Reserve rate cuts weighed on sentiment, while investors assessed the broader economic impact of U.S. tariffs unleashed last week.

The dollar remained under pressure following Friday's U.S. jobs report that showed cracks in the labour market, prompting traders to swiftly price in rate cuts next month.

U.S. President Donald Trump's firing of a top statistics official and the resignation of Federal Reserve Governor Adriana Kugler also exacerbated market unease, leading to a sharp dive in the dollar on Friday. The U.S. currency found its footing on Monday but was weaker in early trading on Tuesday. The euro  last bought $1.1579 while sterling  stood at $1.3298.The dollar index  which measures the U.S. currency against six other units, was at 98.688 after touching a one-week low earlier in the session.Traders are now pricing in a 94.4% chance of the Fed cutting rates in its next meeting in September, compared to 63% a week earlier, CME FedWatch tool showed.

GBP/USD:

The GBP/USD pair trades on a flat note near 1.3280 during the Asian trading hours on Tuesday. Nonetheless, rising odds of Federal Reserve (Fed) rate cuts could weigh on the US Dollar (USD) against the Cable. Investors will keep an eye on the US ISM Services Purchasing Managers Index (PMI) data, which is due later on Tuesday.

Soft US job data released on Friday prompted investors to ramp up bets of imminent Federal Reserve (Fed) rate cuts, which undermine the Greenback. The US employment growth undershot expectations in July, and the Nonfarm Payrolls (NFP) count for the prior two months was revised down by a massive 258K jobs, indicating a sharp deterioration in US labor market conditions. 

Markets are now pricing in nearly a 95% odds the Fed will ease rates next month owing to the weaker-than-expected US employment data, with over 63 basis points (bps) worth of cuts expected by December, according to Reuters. 

The Bank of England (BoE) interest rate decision will take center stage on Thursday. The UK central bank is widely expected to cut interest rates at the August meeting to prevent the economy from sliding backwards amid rising unemployment and the hit to global trade from US tariffs. 

Financial markets have priced in more than an 80% chance of BoE rate cuts at the August meeting and are penciling in a further quarter-point reduction before the end of the year. Traders will closely monitor the BoE's Governor Bailey speech after the monetary policy meeting. Any dovish remarks could drag the Pound Sterling (GBP) lower in the near term. 

EUR/USD:

EUR/USD extends its losses for the second consecutive day, trading around 1.1560 during the Asian hours on Tuesday. The pair depreciates as the US Dollar (USD) gains ground following traders’ caution, driven by the latest global trade developments and shifting expectations for monetary policy. Market participants will likely observe the HCOB Composite and Services Purchasing Managers’ Index (PMI) data from the Eurozone and Germany later in the day. Focus will shift toward the US ISM PMI later in the North American session.

The market sentiment turns cautious over rising concerns over the Federal Reserve’s (Fed) independence. US Federal Reserve (Fed) Governor Adriana Kugler unexpectedly resigned on Monday. This event has provided US President Donald Trump an earlier-than-anticipated opportunity to influence the central bank. Trump may nominate a replacement potentially more aligned with his calls for lower rates.

However, the Greenback may struggle amid rising odds of an interest rate cut by the US Federal Reserve (Fed) in September, following weaker labor market data that has heightened concerns over the US economic outlook. According to CME’s FedWatch Tool, markets are pricing in a 91.6% chance of a Federal Reserve rate cut next month.

dditionally, San Francisco Fed President Mary C. Daly said late Monday that although there are plenty of reasons to start looking at interest rate cuts, there remains plenty of uncertainty, making it difficult for Fed officials to step into rate trimming too quickly. We can't wait to be certain there is no inflation persistence, need to make a call based on what's most likely, Daly added.

In comparison, the European Central Bank (ECB) is expected to hold rates steady as the Eurozone annual inflation held at 2.0% in July, slightly above the 1.9% forecast. Meanwhile, traders adopt caution amid the imposition of 15% US tariffs on goods imported from the European Union (EU).

Gold:

Gold (XAU/USD) kicks off the week on a cautious note, trading flat to slightly higher on Monday, as the US Dollar (USD) stabilizes but remains under pressure in the aftermath of Friday’s disappointing Nonfarm Payrolls (NFP) report. At the time of writing, the yellow metal is hovering near $3,375 during American trading hours, having bounced from an intraday low of $3,345, as traders remain cautious amid fragile sentiment and shifting Federal Reserve (Fed) interest rate cut expectations.

July’s jobs report delivered a clear downside surprise. The data has meaningfully increased the likelihood of a rate cut at the Federal Reserve’s (Fed) next monetary policy meeting in September — a shift in sentiment after markets had recently scaled back expectations following last week’s Fed decision to hold interest rates steady.

Despite the renewed dovish tilt in rate cut expectations, Gold’s upside remains limited for now. US Treasury yields have stabilized after Friday’s sharp decline, acting as a headwind and capping bullish momentum in the non-yielding metal. However, growing concerns over political interference are adding a layer of caution to the market mood. US President Donald Trump abruptly fired Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer on Friday. Trump accused the BLS head of falsifying employment data after the July jobs report showed a steep slowdown in hiring and sharp downward revisions to previous months, all without providing any evidence.

USD/INR Cash/Tom/Spot Levels: (in Paisa)

(Updated as on 5^th  August , 2025 @ 09.00am)

 Cash/Tom:   0.10/1.25        Cash/Spot: 0.20/2.50

 Tom/Spot:    0.10/1.25         Spot/Next: 0.10/1.25

Cash Date:    05.08.2025

Tom Date:      06.08.2025

Spot Date:     07.08.2025

Outlook for the day 4^th August: Rupee expected to trade in range of 87.85 to 88.10

MAJOR WORLD CURRENCIES: as on (4^th  August, 2025)

Foreign Currencies

Updated: 17:30 hrs. (12:00 GMT) on 4^th  August 2025

Precious Metals

Updated: 17:30 hrs. (12:00 GMT) as on 4^th August 2025

Stock Indices

The views contained herein are those of individuals and not necessarily those of the Bank.  This is for information purpose only and no recommendations are intended.  While due care has been taken in preparation of this communication, IOB cannot be held responsible for any consequences of any decisions based on this information. Comments/Suggestions may be freely emailed to feddeal@iobnet.co.in