After the passage of the Big Beautiful Bill, the focus has shifted again to tariffs.
In case of countries where trade negotiations stalled, the Trump administration has announced reciprocal tariff rates, sticking to its July 9 deadline.
Imports from Brazil and Canada will face tariffs of 50% and 35% respectively effective August 1.
The UK and Vietnam are the only two countries that have managed to secure trade deals so far.India is not in the list of countries for whom reciprocal tariffs have been announced.
It is very likely that a mini trade deal could be reached before the revised 31st July deadline.
India could face a tariff rate of less than 20% which is favorable compared to countries in the region such as Indonesia (32%) and Thailand (36%).
However, it may be premature to rejoice as Trump has also threatened additional tariffs on BRICS members.
Moreover, two Senators have moved a bill that proposes 500% tariffs on countries purchasing crude from Russia.
Trump however is not happy with the bill in its current form.
Live EventsEven if the rate is softened, it could impact India significantly as it is currently procuring 35% of its requirement from Russia.
Considering that both the Big Beautiful Bill and tariffs would be inflationary for the US, the Fed is likely to exercise caution in cutting rates further.
Fed is likely to keep rates on hold in July policy.
The market is pricing in two cuts by the Fed till the end of 2025.
There could be yet another twist here as Trump is looking to replace Fed Chair Powell.
If current treasury secretary Scott Bessent or any of Trump's handpicked candidates takes over, we could see faster and deeper rate cuts get priced in.
All of the current uncertainty means that we could see US real rate expectations move lower and this should be negative for the Dollar.
Though in the near term the Dollar index looks poised for a technical bounce, we would prefer using that opportunity to short the Dollar, especially against majors such as EUR, JPY, CHF and GBP.
Dollar weakness may be much less pronounced against EM currencies.
Given that substantial correction of Rupee overvaluation has already happened, we expect the Rupee to align more closely with its Asian peers, especially the Yuan.Developments around trade deals with China and the EU will be in focus as these are US' two major trading partners.Over the medium term we see USD-INR remaining steady in a 84.80-87.00 range.
Crude retracing with easing geopolitical tensions and OPEC+ production hikes means that the BoP situation should be comfortable.
RBI FX Reserves have reached a comfortable USD 700bn.
Though of course it still has to contend with a short forward book of around USD 60bn.
FPI flows into domestic equities have been positive over the last three months.
These have been partially offset by outflows from the debt market though.Exporters are advised to hedge a part of their exposures through participating structures such as Risk Reversals.
Importers are advised to hedge through Out of the Money calls to protect against any major right hand side move in USD-INR.(The author is Founder and CEO IFA Global)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own.
These do not represent the views of Economic Times)