The US Dollar (USD) experienced a slight softening as global risk appetite improved, driven by easing geopolitical tensions and a rebound in the technology sector. However, OCBC’s Sim Moh Siong notes that resilient US economic data, hawkish signals from the Federal Reserve (Fed), and sustained capital expenditure in artificial intelligence continue to support a modest upside for the USD, especially when contrasted with weaker economic momentum in Europe and China and a behind-the-curve Bank of Japan (BoJ) [1]. The near-term direction of the USD is now seen as hinging on signals from the European Central Bank (ECB) Sintra forum and the upcoming US payrolls report [1].
In the context of central bank independence, a narrow 5-4 Supreme Court ruling allowed Governor Cook to remain on the Fed Board while her case proceeds, reinforcing Fed independence and easing concerns about 'debasement' risk. This has led to the unwinding of debasement trades, as reflected in a flatter US yield curve and softer gold and crypto prices [1].
For the Indian Rupee (INR), Societe Generale strategists report that USD/INR is trading in a tight range of 94.15-94.95, with robust foreign portfolio inflows into Indian debt and supportive domestic measures offset by the Fed’s hawkish stance [2]. Supportive measures include the appeal of foreign flows via FCNR deposits, subsidised FX hedging costs for banks, allowing ECBs for PSU lenders, and removing taxes on capital gains and interest income from government securities [2]. Softer oil and gold prices have also supported FPI demand for Indian debt. The potential inclusion of Indian FAR bonds in the Bloomberg Global Aggregate Index at the mid-2026 review could result in $25bn-$30bn in FPI inflows over the next 12 months if a 1% weight is assigned [2]. The 10-year Indian Government Bond yield has eased to 6.75%, just 9 basis points away from pre-war levels [2].
Meanwhile, BNP Paribas strategists highlight that the European Union (EU) maintains stronger public finances and a growing international role for the Euro (EUR), despite weaker post-Covid productivity compared to the US [3]. As of 2025, public debt ratios are projected at 83% of GDP for Europe and 124% for the US, a 40 percentage point gap [3]. US interest payments are expected to reach 4.7% of GDP, the highest in 28 years, compared to less than 2% in the EU [3]. The Euro continues to gain ground as an international reserve currency, with strong growth in international debt issuance denominated in euros, particularly for green and sustainable bonds [3]. The EU’s fiscal room and potential for renewed joint debt issuance are seen as significant advantages in addressing future investment needs [3].
CONCLUSION
The US Dollar retains modest upside potential amid resilient US data and hawkish Fed signals, though near-term direction depends on upcoming central bank communications and payroll data. The Indian Rupee remains range-bound, with robust foreign inflows and supportive domestic measures offset by Fed policy. The Euro stands out for its fiscal strength and growing reserve status, underpinned by lower debt burdens and expanding international use. Overall, global currency markets are shaped by diverging fiscal and monetary dynamics across major economies.