Key Headlines

The Indian rupee spot against the US dollar end marginally higher to break 4-days losing streak on Tuesday, thanks to dollar sales from state run banks as added by fall in dollar index and expected inflows in coming months. However gain seen limited on outflows concern along with trade deal uncertainty and fresh threat from U.S President to increase tariff.

The rupee at NSE Future 28 Jan-26. ended higher by 14 paise at 90.26 against previous close of 90.40 and after make low of 90.21 and high of 90.40.

India's services sector expansion slowed to its weakest pace in 11 months in December as new business growth eased and hiring stalled, a survey showed on Tuesday. HSBC's India Services PMI, compiled by S&P Global, dropped to 58.0 last month from November's 59.8, lower than expectations of 59.1. A reading above 50.0 indicates growth in activity, while below that level points to a contraction. New business growth - a key gauge for demand - eased to its slowest pace since January 2025. HSBC's India Composite PMI, including manufacturing activity which slowed to its weakest pace in two years, fell to 57.8 in December from 59.7 in November, marking an 11-month low.

India's fuel consumption hit 21.75 million metric tons in December, up 5.3% year-onyear and the highest monthly number recorded in oil ministry data going back to April 1998. Data released by the oil ministry's Petroleum Planning and Analysis Cell (PPAC) on Tuesday showed sales of gasoline, or petrol, stood at 3.56 million metric tons in December, up 1.1% from November and 7.1% from a year earlier. Diesel consumption was at 8.46 million tons, up 5% from a year earlier but down 1.1% month-on-month. Liquefied petroleum gas consumption rose 11.2% from a year earlier to 3.08 million tons. Naphtha sales fell 0.4% year-on-year to 1.01 million tons, while consumption of bitumen, used primarily in road construction, rose 0.3% from November and 18.8% on an annual basis at 0.91 million tons. Fuel oil usage stood at 0.57 million tons, rising 2.3% from a year earlier and about 1.6% month-on-month.

The United States could raise tariffs on India if they does not meet Washington's demand to curb purchases of Russian oil, President Donald Trump said on Sunday, escalating pressure on the South Asian country as trade talks remain inconclusive. "(Prime Minister Narendra) Modi is a good guy. He knew I was not happy, and it was important to make me happy," Trump told reporters aboard Air Force One.

The rupee closed 2025 marking with a 4.72% decline for the year, its worst showing since 2022, when it dropped nearly 10%. Over the near term market participants are monitoring equity flows to assess whether the year shapes up differently from 2025, when foreign investors pulled out record amounts from the local stock market. An improvement in equity flows would be key to alleviating dollar demand–supply pressures that hurt the rupee in 2025.

A dismal year for the U.S. dollar is ending with signs of stabilization, but it is to be believe the currency's decline will resume next year as global growth picks up and the Fed eases further. The U.S. dollar slumped more than 9% this year, against a basket of currencies, its worst showing in 8- years, driven by expectations of Federal Reserve rate cuts, shrinking interest rate differentials with other major currencies, and as concerns about U.S. fiscal deficits and political uncertainty swirled. The dollar typically falls when the Fed cuts rates as lower U.S. interest rates make dollar-denominated assets less attractive to investors, reducing demand for the currency.

In terms of portfolio outflows, India is one of the worst hit markets globally, with foreign investors' net selling of its stocks amounting to nearly $18 billion so far this year. The weakness in portfolio investment has also coincided with a slowdown in foreign direct investment, adding to the pressure.

The U.S. dollar edged higher against major peers on Tuesday, with the euro weighed down by softer inflation data, but moves were fairly muted with commodity and stock markets drawing most of the day's attention.

Fed governor Stephen Miran, whose term ends at the end of January, said Tuesday the U.S. central bank needs to cut interest rates aggressively this year to keep the economy moving forward. Minneapolis Federal Reserve President Neel Kashkari, a voter on the Fed's rate-setting committee this year, told CNBC on Monday he sees a risk that the jobless rate could "pop" higher. Fed interest rate changes will need to be "finely tuned" to incoming data given risks to both the Fed's unemployment and inflation goals, Richmond Fed president Tom Barkin said on Tuesday. Barkin is a non-voter on the Fed's rate-setting committee this year.

The U.S. monthly employment report, due on Friday, will be key in shaping expectations for the outlook for monetary policy - an arguably weightier factor for the dollar.

The euro was last down 0.25% at $1.16920. Against the Swiss franc , the dollar was up 0.42% to 0.795 and was up 0.15% to 156.6 on the Japanese yen. The dollar index , which measures the greenback against major currencies including the yen and the euro, rose 0.19%. Against the Chinese yuan trading offshore in Hong Kong , the U.S. dollar was flat at 6.981 yuan. The New Zealand kiwi weakened 0.14% versus the greenback to $0.578.

The report bolstered views that the Federal Reserve will hold off on cutting rates at its January meeting, with the odds currently at 87%, according to LSEG estimates. U.S. rate futures now expect the next Fed easing to occur in June, with two rate cuts of 25 basis points each priced in for 2026.