USD/INR maintains position above 87.00 after HSBC PMI data release

• USD/INR holds ground amid rising trade tensions between the US and China.
• India HSBC Composite Purchasing Managers' Index fell to a 14-month low of 57.7, from the previous 59.2 reading.
• Traders await Friday's US Nonfarm Payrolls, which is expected a slight slowdown in job creation for January.

USD/INR continues its upward momentum for the fourth consecutive day, trading around 87.10 during Wednesday's Asian session. The risk-sensitive Indian Rupee (INR) remains under pressure due to increased risk aversion following rising trade tensions between the US and China.

On the economic front, the seasonally adjusted India HSBC Composite Purchasing Managers' Index (PMI) dropped from 59.2 in December to a 14-month low of 57.7. Despite the decline, the reading remains above the long-term average, signaling continued economic expansion. Meanwhile, the Services PMI registered at 56.5 in January, reflecting strong growth, though it slipped from 59.3 in December to its lowest level since November 2022.

In response to the new 10% US tariff that took effect on Tuesday, China imposed a 15% tariff on US coal and liquefied natural gas (LNG) imports, along with an additional 10% tariff on crude oil, farm equipment, and certain automobiles.

Despite the escalating trade dispute between the United States and China, traders remain hopeful for a potential resolution, similar to the agreements reached with Mexico and Canada. US President Donald Trump stated on Monday that he expects to speak with China soon but warned, "If we can't reach a deal with China, the tariffs will be very, very substantial." However, no further developments have been reported.

Meanwhile, investors anticipate a 25-basis-point rate cut in the Reserve Bank of India's (RBI) upcoming monetary policy meeting on Friday, amid slowing economic growth. Market optimism has been further buoyed by expectations following the FY2026 Budget.

Looking ahead, traders await Friday's US Nonfarm Payrolls (NFP) report, which is expected to influence the Federal Reserve's (Fed) monetary policy direction. Consensus estimates suggest a slight slowdown in job creation for January 2025.