The dollar index edged lower as the US senate passed Trump’s tax cut and spending bill, raising fiscal concerns. The bill is expected to increase US debt substantially by $3.3 trillion. It will now be sent back to the lower house for a final vote. The US 10-year bond yield saw muted reaction to the senate approval of the bill and was last trading at 4.25% levels as markets focussed on likely rate cuts by the Fed despite Powell’s cautious comments this week. On tariffs, Trump said that he does not plan to extend the July 9 deadline and said that the US could reach a trade deal with India, but casted doubts on chances of reaching a deal with Japan. Any announcement of a trade deal with India could help further accelerate the gains in the INR vs. the USD in the coming days.
Dollar view: The US dollar index remained weak and was last trading at 96.676 levels in early Asia trade on rising fiscal concerns in the US. After dropping close to 96.3 levels, the DXY came off its overnight lows supported by somewhat better than expected PMI reading and Job openings data. The market will now turn attention towards the US nonfarm payroll report this week and news on trade deals. While the DXY could see increased volatility and two-way moves in the near-term, we expect it to settle lower by the end of the month.
EUR/USD: The EUR/USD pair traded close to 1.18 levels and the German 10-year yield moderated as international investors looked to move away from US assets. We expect the momentum in the EUR/USD pair to continue in the near-term and see a range of 1.16-1.18. That said, over the coming month, we do not rule out the possibility of a move above 1.19 levels — triggered by tariff headlines, weak US data and any signals by the Fed that it is turning towards rate cuts.
USD/JPY pair was trading around 143.6 levels in the early Asia trade today. Despite Donald Trump and the white house raising doubts on the possibility of reaching a trade deal with Japan, the USD/JPY pair could find support from safe haven flows in the near-term.
USD/INR: The pair appreciated by 0.3% on Tuesday to 85.52 at close, supported by a weaker dollar. The pair is expected to trade in a range of 85-86 in the near-term. Increased risk aversion due to mounting tariff uncertainty could weigh on the pair this week.
Bond yields: India 10Y bond yield closed 3 bps lower at 6.29% on Tuesday. With oil prices remaining subdued and system liquidity comfortably in surplus, domestic bond yields are likely to remain low this week, expected trading range 6.25% - 6.30%.
System Liquidity: Liquidity surplus stood at INR 2.62 lakh crore as of 30th June 2025, likely supported by month end government spending.