Dollar rally may lose steam as tariffs hurt consumption: S&P – The Times of India

MUMBAI: The US dollar may have run out of steam, with weaker economic data resulting in a decline in the dollar index. More weakness may be forthcoming as the announced tariffs will push up prices, reduce spending, and hit growth in the US.
“The reversal of the dollar index in the last two-three weeks has been in parallel with the weakened data that has been coming up. When weaker data comes up, the view of what the Fed might do changes towards a more easing bias which in turn leads to less of a pressure on foreign exchange,” said Satyam Panday, chief economist US & Canada at S&P. He was speaking at Crisil’s India outlook event.
According to Panday, the US outperformance narrative is probably not going to hold this year, going by the impact of tariffs. “Without getting into the issue of reciprocal tariffs, the tariffs that have already been implemented – Canada, Mexico and the Chinese tariffs, back of the envelope calculation indicate a 60-70-basis-point price rise impact on the basket. If you look at the marginal propensity to consume you would probably see a 20-30 basis points impact on consumer spending.”
According to D K Joshi, chief economist at Crisil, every time the rupee has fallen sharply from its trend rate of depreciation, it has been followed by an appreciation or a long period of stability.
“Our forecast of the rupee-dollar exchange rate for March 2025 was at 87 and for March 2026, it was mild depreciation leading up to 88. I between I think there will be volatility but beyond that, this is our projection,” said Joshi. “We are going through the volatile phase right now, where you’ll see ups and downs in currency. But if it depreciates too much it will also appreciate.”
According to Joshi, the outflow of capital now has nothing to do with the interest rate differential but with uncertainty, because of which money was going back to its home market.