Forex Overview: BRICS Under Fire – ForexNews.PRO
It would be easy to assume that President Trump is now targeting the BRICS alliance, with India, Russia, and Brazil currently under scrutiny. Favorable market conditions in August hinge on the continuation of the US-China truce. Shifting away from global politics, today’s attention centers on the US ISM services data.
USD: BRICS Under Scrutiny
The US dollar is stabilizing after significant losses on Friday. Market interest is particularly focused on President Trump’s increased pressure on India. The possibility of secondary sanctions became more apparent yesterday as Washington concentrated on India’s purchase of Russian crude oil, a substantial 1.7 million barrels daily.
The primary objective might be the threat of secondary sanctions concerning India’s financial support of Russia. Alternatively, this could be a move to exert pressure on India, encouraging it to open its domestic economy to agricultural imports or commit to buying US energy.
Regardless, India and its currency, the rupee, are facing pressure, and there is speculation about the Reserve Bank of India’s (RBI) commitment to defending the 88 level in USD/INR. This year, the RBI has allowed greater rupee flexibility, and inflation is lower than usual, raising questions about its resolve to defend 88.00.
Brazil is also in the spotlight, facing US tariffs currently at 50%. The U.S. accuses Brazil of human rights abuses while pursuing former president Jair Bolsonaro. Brazilian institutions are resisting, and Bolsonaro has been placed under house arrest. President Lula will address the nation tomorrow regarding his government’s response to Washington’s pressure.
Further escalation is possible, like increasing US tariffs to 100%. However, the Brazilian real is performing well due to global interest in the carry trade and the attractive near 15% implied yields. The South African rand is also relatively strong despite 30% US tariffs, primarily because the local central bank’s decision to pursue a lower (3%) inflation target has encouraged inflows into the local bond market.
A key concern regarding the pressure on the BRICS nations is whether the US-China trade detente will endure. While the market anticipates it will, there is another deadline on August 12. Extending the current favorable trading conditions would be greatly appreciated by the market. Should the US intensify pressure on China again, it may appear that President Trump is launching a new campaign against the BRICS nations.
Turning back to the US dollar, Federal Reserve non-voter Mary Daly suggested that the risks are now skewed toward more than two Fed rate cuts this year. Currently, around 60bp of Fed easing is already priced in. More importantly, Federal Reserve voters Susan Collins and Lisa Cook will speak tomorrow.
Today, US markets are focused on the ISM services figure for July. Expectations are for a slight improvement, which could provide a small boost for the US dollar. However, any Dollar Index (DXY) rally is expected to stall in the range of 99.00/99.25, representing a shallow correction after Friday’s decline.
EUR: Consolidation in Quiet Conditions
EUR/USD appears comfortable around the 1.1550 level and might remain there without significant market developments. Buyers are expected to return in the 1.1500/1.1520 area if US data negatively impacts EUR/USD today. The only eurozone data release today is the June PPI, expected at 0.6% year-on-year.
This situation reminds us that the European Central Bank is more concerned about inflation falling short of its targets than surpassing them. ING maintains its forecast of an ECB rate cut in September, which is considered a bold prediction.
