CURRENCY OVERVIEW

The rupee strengthened on Friday to post its best monthly gain since February, bolstered by policy measures to support the currency by curbing dollar demand even as elevated ‌oil prices and persistent portfolio outflows keep up pressure on the unit. The currency rose about 1% month-on-month, its strongest performance since a breakthrough in US-India trade negotiations lifted the spectre of heavy tariffs and sparked a rally before conflict in the Middle East renewed pressure. Earlier in October, the RBI unveiled steps to shore up the rupee by redirecting oil companies' dollar purchases away from the spot market and tightening hedging rules as the currency hovered near its all-time low of 96.96 hit in May. The impact of the measures, combined with market interventions by the central bank, helped the rupee outperform most Asian peers in October but analysts reckon elevated oil prices remain a risk for the currency. The pound was one of the better performing currencies on Friday, drawing strength from the government's budget and supported by ‌expectations for the Bank of England to raise rates next week. With that risk event out of the way, and expectations set for a rate rise from the BoE next week, sterling was up 0.4% on Friday at $1.3429, making it the best-performing major currency of the day. The pound is heading for a 1% gain against the dollar this month, its first monthly gain since August. It has fallen 0.6% against the dollar in 2026, handily outperforming the euro , which has fallen nearly 5%, and on a par with the yen , which is also down 0.6% against the US currency. Its performance against the euro this year ‌is even starker. The euro has lost over 4% against sterling, although this is more driven by broad-based negativity towards the single European currency than by outright optimism over the pound, as evidenced by the vast position investors have built up that bet against the euro itself . Money markets show traders are almost fully pricing in a hike from the BoE next week, followed by a second in February, a third by July and a 50% chance of a fourth by December 2027. With the British economy consistently beating expectations, government bond yields on the rise, inflation at 3.1% and forecast to rise to roughly double the target, and no sign of the war in the Middle East ending any time soon, most economists believe it is now time to increase borrowing costs. The yen headed for a third daily gain on Friday after the Bank of Japan held rates but revised up its inflation forecast, while a fresh wave of selling in AI ‌shares triggered demand for safe havens that bypassed the dollar, with falling Treasury yields adding to pressure on the US currency. The yen strengthened to a high of 157 per dollar, set for a 0.2% gain in October. The euro was up 0.12% at $1.1195, up for a third straight day, having hit its lowest since May 2025 on Thursday, after the ECB left rates unchanged and indicated higher bond yields had tightened financial conditions, initially prompting traders to lower their expectations for a hike in December. The dollar index , which tracks the US currency against six others, was down 0.2%, largely as a function of the pickup in the euro and the yen. It has risen 0.3% in October, up for a second straight month.