The Euro (EUR) extended its gains against the US Dollar (USD) for a second consecutive day, trading around 1.1620 during Asian hours on Friday. This upward movement was supported by recent Eurozone inflation data, which showed headline inflation rising to 3.2% in May—the highest in over two and a half years. Core inflation accelerated to 2.5%, and services inflation rose to 3.5%, indicating broadening price pressures. These figures have solidified market expectations for a near-certain 25-basis-point rate hike by the European Central Bank (ECB) at its June 11 meeting, with traders pricing in two or three rate increases for the year [1].
Meanwhile, the Indian Rupee (INR) faced marginal selling pressure against the USD after the Reserve Bank of India (RBI) left its Repo Rate unchanged at 5.25%, as expected. The USD/INR pair traded marginally lower at around 95.70. RBI Governor Sanjay Malhotra noted that headline inflation remains below the central bank’s target, and core inflation is much lower, excluding precious metals. However, the RBI raised its retail inflation forecast for the Financial Year 2026-27 to 5.1% from the previously anticipated 4.6%. The RBI signaled a data-dependent approach, stating it is prudent to wait for greater clarity before making further policy moves [2].
Geopolitical tensions continue to influence currency markets. Hostilities between Israel and Lebanon persist despite a US-brokered ceasefire, with Hezbollah chief Naim Qassem rejecting the deal and warning that northern Israel will remain a target as long as Israel continues to bomb Lebanon. These ongoing attacks could lead to a rally in oil prices, which would be unfavorable for oil-importing economies like India [2]. Additionally, traders are cautious due to developments surrounding a potential US-Iran peace agreement. Iranian Foreign Minister Abbas Araghchi warned that the Strait of Hormuz falls within Iranian and Omani territorial waters and that US regional military bases are active targets for retaliation. US President Donald Trump expressed optimism about a possible peace framework, while Israeli Defense Minister Israel Katz affirmed continued military operations in Lebanon despite the ceasefire [1][2].
Both articles highlight anticipation for the US Nonfarm Payrolls (NFP) report, expected to show 85,000 jobs added in May with the unemployment rate steady at 4.3%. Year-on-year average hourly earnings are estimated to arrive lower at 3.4% from 3.6%, while monthly wage growth is expected at 0.3%, up from 0.2% in April. The NFP data is seen as a key driver for market direction and Federal Reserve policy expectations [1][2].
Technical analysis from source 2 indicates that USD/INR maintains a constructive bullish bias, trading above the 20-period Exponential Moving Average (EMA) at 95.4910, with the 14-period Relative Strength Index (RSI) near 55, suggesting mildly positive momentum [2].
CONCLUSION
Currency markets are being shaped by central bank decisions, inflation data, and ongoing geopolitical tensions. The Euro is buoyed by rising ECB rate hike expectations, while the Indian Rupee faces pressure amid unchanged RBI policy and heightened inflation forecasts. Investors are closely watching the US NFP report for further market direction, with geopolitical risks continuing to weigh on sentiment.