The Indian rupee declined to its weakest level in over two months on Tuesday, hit by outflows from local equities, while traders turned their focus to the Reserve Bank of India's monetary policy decision on Wednesday where a hike is widely anticipated. Dollar sales from state-run banks, most likely on behalf of the RBI, helped limit the rupee's fall. The currency ended the session at 96.42, down 0.1% from its previous close. The central bank also likely conducted dollar-rupee sell/buy swaps to drain excess rupee liquidity from the banking system, traders said. It has been conducting such FX swaps, open market bond sales and reverse repo transactions to absorb excess cash in the weeks leading up to Wednesday's policy decision. Swap markets have priced in a modest possibility of a larger-than-expected 50-basis-point rate increase. A rate hike would aid the rupee by raising the cost of betting against the currency at a time when short positions on it have remained firm due to lingering energy supply risks from conflict in the Middle East. The pound eased against the euro on Tuesday as French bonds rallied from the previous session's fall that helped propel sterling to an almost three-month high. The euro fell sharply on Monday as investors worried that a dramatic fall in French bonds due to concerns about public debt and a looming election was spreading to other markets such as Italy. The euro was last up 0.1% at 84.88 pence after hitting an almost three-month low of 84.61 pence on Monday following seven straight sessions of declines. Sterling was around 0.1% higher against the dollar at $1.322. Gold ticked up on Tuesday, supported by a pause in the US Treasury yield's rally and a weaker dollar, while investors awaited the minutes of the Federal Reserve's September meeting for fresh clues on its monetary policy outlook. Spot gold rose 0.6% to $4,163.16 per ounce by 12:22 p.m. EDT (1622 GMT). US gold futures for December delivery added 0.8% to $4,191. Among other metals, silver rose 0.5% to $61.32, while platinum slid 1% to $1,703.40 and palladium fell 0.2% to $1,170.55.
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The euro rebounded on Tuesday and was on pace for its strongest move higher in a month after falling to its lowest in 17 months in the prior day, as a pullback in French government bond yields cooled fears about strain in euro zone debt markets. The euro zone's currency climbed 0.28%, on track for its biggest daily gain since September 3, at $1.1252. the currency had slid to its lowest since May 2025 on Monday at $1.116, following a drop of more than 1% in the prior week, its fourth straight weekly decline. The dollar index , which measures the greenback against a basket of currencies, fell 0.26% to 101.89 and was on pace for its biggest daily drop since September 25. Bond markets around the world have seen yields rise due to expectations of sharp central bank rate hikes as energy prices have jumped due to the US-Israeli war with Iran and fanned inflation, as well as concerns about government finances. France is at the heart of the European market concerns. The French government is seeking to enact an unpopular 2027 budget to lower its deficit and contain its record-high debt load, a tall order in a deeply divided parliament as political factions position ahead of next year's presidential election. With inflation already rising on soaring energy costs and higher yields increasing household and corporate borrowing costs, further euro weakening could leave the European Central Bank caught between fighting inflation and calming bond markets.
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