What’s At Stake As Trump Tests India’s Ties With Russia

Economic

Political

Summary:

President Donald Trump’s move to penalize India for buying oil and arms from Russia will increase economic risks for the South Asian nation and test its longstanding ties with Moscow.

Trump said on July 30 he will impose a 25% tariff on Indian exports to the US and add an undefined penalty for New Delhi’s energy and military purchases from Russia. The threat came a day after Trump shortened Russia’s deadline to reach a truce with Ukraine.

Washington and its partners see India’s purchases of Russian energy as a form of tacit support for Moscow that weakens the impact of the sanctions they’ve imposed in response to Russia’s invasion of Ukraine.

“I don’t care what India does with Russia. They can take their dead economies down together, for all I care,” Trump said in a Truth Social post a day after announcing the India tariff.

India has had a strong and stable relationship with Russia over the last seven decades. India’s External Affairs Minister Subrahmanyam Jaishankar has referred to it as the one constant in global politics over the last half century.

The long-standing relationship has its roots in the Cold War era, when India maintained cordial relations with Moscow as the US moved closer to India’s arch-rival Pakistan. Despite New Delhi’s avowed non-alignment with either of the era’s two superpowers, Washington’s backing of Pakistan in its 1971 civil war that led to the independence of Bangladesh drew New Delhi closer to Moscow. The ties between India and Russia deepened over the next three decades as they collaborated in critical areas such as space, nuclear energy and defense.

As India’s relations with Washington began to improve in recent decades, it’s reduced its overwhelming reliance on Russian weapons by acquiring more arms from the US and European nations. Prime Minister Narendra Modi has maintained India’s longstanding ties to Moscow, while pursuing deeper links with the US, which it sees as a partner in standing up to a more assertive China.

After Russian forces invaded Ukraine and Western nations tightened sanctions on Moscow, India began buying large volumes of Russian oil. India has stood out among major democracies for its reluctance to criticize Russian President Vladimir Putin, and has abstained from United Nations votes condemning his war in Ukraine. It has also refused to participate in punitive measures against Russia.

Modi maintains close ties with the Russian leader, having visited the country in October. Putin is scheduled to visit India later this year.

Trade between India and Russia reached a record high of $68.7 billion in the year to March 31. India’s exports to Russia were worth $4.9 billion and its imports from Russia amounted to $63.8 billion.

Russia’s biggest investments in India are in oil and gas, petrochemicals, banking, railways and steel, while Indian investments in Russia focus mainly on oil, gas and pharmaceuticals.

India, the world’s third-largest oil consumer, buys about 35% of its crude oil from Russia, up from just 1% before the full-scale invasion of Ukraine. The South Asian nation has become hooked on Russian seaborne crude oil because it comes at a discount to market rates.

India traditionally relied on suppliers from the Middle East, such as Saudi Arabia, to meet its oil requirements. Shifting away from Russian oil would push India back to those Middle Eastern suppliers, which would likely lead to an increase in the cost of imports.

Russia is the largest supplier of weapons for India, according to a March report from the Stockholm International Peace Research Institute, an independent think tank that studies global weapon sales. India has purchased fighter jets, battle tanks and missiles from Russia and the two countries also formed a joint venture to produce Kalashnikov assault rifles for India’s armed forces.

India — the world’s second-biggest arms importer — has slowly been reducing its dependence on Russian weapons in recent years. There have been no new major arms deals with Russia for the last few years, and India’s push to diversify looks set to continue after delays in the delivery of Russian S-400 air defense systems.

Many of India’s weapons now come from the US. India has contracted at least $24 billion worth of US-origin defense articles, according to a 2025 US Congressional report. Major purchases include attack helicopters, transport aircraft and howitzers, according to the report. More weapons sales are being considered, including of anti-submarine warfare, communication and land-attack equipment, the report said.

“Since 2008, defense trade has emerged as a major pillar of the US-India security partnership, and bilateral military exercises across all services are now routine,” the report said.

Economists say any shift away from trading with Russia would have implications for India’s inflation and economic growth. Standard Chartered Plc estimates that a 100% pivot from Russian oil could increase India’s annual import bill by $4 billion to $6.5 billion.

If India stops buying oil from Russia and higher fuel prices are passed on fully to consumers, inflation would be 3-5 basis points higher, Standard Chartered’s economist Anubhuti Sahay wrote in a report. The impact on India’s economic growth would be muted, she said, with an estimated decline of about 4-5 basis points.

“While the macro impact of such a shift appears manageable on a standalone basis, the actual impact would depend on how crude oil prices reacted to lower Russian crude oil supply globally,” she said.

The strong India-Russia relationship has often frustrated officials in Washington, who have sought to foster closer ties with New Delhi as a strategic counterweight to China. India’s government said in a statement it’s committed to a bilateral trade deal with the US, but didn’t address Trump’s threat to penalize it over its energy and defense purchases from Russia.

According to an analysis by Bloomberg Economics, the stakes are high for both Delhi and Washington. “Trump’s move to link arms and energy imports from Russia with trade talks is likely to inject fresh friction into the relationship, especially coming after the recent conflict with Pakistan,” Chetna Kumar and Abhishek Gupta wrote in a report.

A prolonged impasse could strain ties and slow progress on defense and tech coordination between the two countries, particularly in countering China’s growing influence, they wrote.

Source: Bloomberg Europe

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Gerik

Economic

A Deal of Necessity: Worst-Case Scenario Avoided

The 15% tariff level, though steep, is seen by South Korean officials and economists as a “second-best” outcome that avoids deeper disruption. Kathleen Oh of Morgan Stanley described it as a relief that removes Korea-specific tariff risk, placing South Korea on even footing with export rivals in the U.S. market, particularly in the auto sector. The Bank of Korea is now expected to revise growth forecasts upward, supported by both the trade clarity and domestic housing market stabilization.

Former trade minister Cheong In-kyo echoed this sentiment, emphasizing that while the tariff isn’t ideal, it opens strategic investment channels for Korean firms looking to expand in the U.S. particularly as Chinese firms face mounting barriers. The trade agreement, in effect, may allow South Korean manufacturers to fill supply chain gaps in the U.S. amid global reshuffling.

Corporate Optimism and Strategic Recalibration

Major South Korean conglomerates responded with guarded optimism. Hyundai Motor Group used the opportunity to reaffirm its $21 billion investment pledge, in addition to $20.5 billion already committed. It emphasized job creation and confidence in long-term U.S. operations, seeing the deal as validation of its positioning in the American market.

Samsung Electronics, meanwhile, maintained a cautious tone. CFO Park Soon-cheol acknowledged that the deal reduces uncertainty but emphasized that Samsung is closely watching how implementation unfolds. This measured response suggests Korean firms remain wary of potential hidden costs or shifting regulatory conditions under Trump’s administration.

Political Scrutiny Over Concessions and Execution

While business leaders and markets may breathe easier, political voices within South Korea urged closer inspection. Former diplomat and now opposition lawmaker Kim Gunn warned that while the headline agreement appears fair, “the devil is in the details.” He raised concerns over possible excessive concessions and called for a deeper review to determine whether the agreement maintains parity with competitors like Japan and Taiwan.

This aligns with broader skepticism about the long-term benefits of the $350 billion investment figure. Cheong In-kyo noted that the value of the deal hinges on where and how those funds are deployed. If the capital flows mainly into U.S. infrastructure or labor markets without reciprocal benefits for Korean firms, Seoul’s bargaining position could appear weaker in hindsight.

South Korea’s trade pact with the Trump administration brings short-term market relief and strategic opportunities for its global firms, especially in autos and tech. However, the true efficacy of the deal depends on follow-up negotiations, transparency in investment allocations, and whether the concessions made serve Korea’s long-term industrial and geopolitical interests. For now, while Trump scores a domestic political win, South Korea must balance its economic pragmatism with vigilance over execution and evolving U.S. trade policy.

Source: Reuters

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Gerik

Economic

Forex

U.S. Dollar's Revival Forces Global Asset Reassessment

Investor expectations that President Trump’s tariffs and heavy borrowing would eventually derail the U.S. dollar and stock market have proven premature. Instead, the dollar index is now at a two-month high and set for a 3% rise in July its first monthly gain of the year helped by solid U.S. data and reduced odds of imminent Fed rate cuts. This reversal is eroding confidence in the so-called “rest of the world” trade, which had boosted European and emerging market equities and currencies.

The euro, once the standout performer in the first half of 2025, is now facing its worst monthly performance in over two years, slipping below $1.15. Meanwhile, the British pound and emerging market equities have also come under pressure, and gold once the top-performing asset of the year is seeing its first three-week losing streak since November, hovering around $3,300 per ounce.

Rotation into U.S. Assets Amid AI Euphoria and Tariff Deals

The return of capital to U.S. assets is being driven in part by renewed investor enthusiasm around artificial intelligence and large-cap tech, which have propelled Wall Street indices to record highs. Despite widespread fears earlier in the year about U.S. macroeconomic vulnerability, the S&P 500 has posted year-to-date gains in line with Europe’s best-performing indices.

A major turning point came with the U.S.-EU trade framework agreement last weekend, which helped alleviate some geopolitical uncertainty and may have catalyzed a rotation back into the U.S. dollar and equities. According to Edmond de Rothschild's Michael Nizard, these shifts reflect a broader realignment in currency markets and investor sentiment, though he remains skeptical that the trend will hold beyond year-end.

Crowded Dollar Short Positions Unwind, Exposing Global Risks

Earlier in July, shorting the dollar was the most crowded trade globally, according to Bank of America’s fund manager survey. As these positions unwind, investors like Pictet Asset Management's Shaniel Ramjee are rapidly rebuilding dollar exposure from “practically zero.” Barclays data confirms a marked slowdown in speculative anti-dollar bets, particularly among trend-following hedge funds (CTAs), which are simultaneously reducing European equity exposure.

This repositioning is triggering what Barclays’ Emmanuel Cau describes as a potential “pain trade,” where the reversal of popular strategies inflicts losses across portfolios concentrated in European and emerging market assets. With the dollar rallying, global equities that had outperformed based on USD weakness are now vulnerable to profit-taking and underperformance.

Temporary Dislocation or Structural Shift?

Despite these shifts, some fund managers maintain a bearish long-term view on the dollar, citing fiscal deterioration and political risk. Amundi’s Monica Defend argues that Trump’s fiscal expansion and pressure on Fed independence will eventually weigh on the greenback. However, she acknowledges that persistent upside surprises in U.S. economic performance could change that view.

Seasonal caution is also setting in. August and September are historically weak months for the S&P 500 in terms of risk-adjusted returns. Nutshell Asset Management’s Mark Ellis plans to reduce risk exposure soon, expecting a potential pullback in the coming weeks.

The unexpected comeback of the U.S. dollar is more than a currency story it’s triggering a global market reset. As short positions unwind and capital returns to U.S. equities, investors are being forced to reassess allocations to Europe, emerging markets, and commodities. While some see this as a temporary rotation, others warn of deeper consequences if the dollar rally persists, including a more volatile and defensive second half of the year.

Source: Reuters

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Samantha Luan

Economic

Political

Inflation in some of the euro zone's biggest economies was at or just above expectations this month, indicating that price growth in the broader currency bloc remained near the European Central Bank's 2% target.Euro zone inflation eased back to 2% this summer after years of overshooting and the central bank now sees it hovering near this level, even as a few policymakers now fear that risks have shifted to undershooting.

Inflation in Italy eased to 1.7% in July from 1.8% in June, coming above expectations for 1.6% while price growth in France was unchanged at 0.9%, above expectations for 0.8%, official figures showed on Thursday.The data, combined with an anticipated jump in Spanish inflation to 2.7% from 2.3%, suggests a modest upside risk in the euro zone figure, which is due on Friday and is seen by economists at 1.9% after a 2.0% reading in June.

Such a small miss is unlikely to concern the ECB, however, after it made clear it considered inflation defeated and was not in any hurry to move rates again after halving them to 2% in the year to June.The ECB is also keen to hold out until it gains more clarity on how the evolution of a global trade conflict will impact prices.Tariffs, imposed by President Donald Trump on U.S. imports, are expected to weigh on prices for now since they slow global trade and economic growth, but a major realignment is corporate value chains could actually raise price pressures further out.

For now, the ECB sees inflation dipping under 2% in the coming months and projects an 18-month period of undershooting before price growth returns back to 2% in 2027.This muted inflation picture and relatively resilient growth are why financial investors think the ECB is close to done cutting rates. Markets see less than a 50% chance of another rate cut this year and they have started to price in a hike towards the end of 2026.

Friday's euro zone inflation reading is also going to be influenced by Germany but figures from various German states showed only modest changes compared to the previous month.Euro zone inflation is expected by policymakers to remain near 2% as still quick price growth in services will be offset by energy and goods prices.The stronger euro and muted wage growth are also exerting some downward pressure on prices, enough to counter upward pressure from increased government spending on things like defence or infrastructure.

Source: TradingView

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Glendon

Forex

Economic

The pace of global rate cuts is slowing as the European Central Bank nears the end of its easing cycle, the U.S. Federal Reserve stays cautious about tariff-driven inflation and investors watch to see whether Britain speeds up from here.

The Fed struck a hawkish tone on Wednesday alongside holding rates steady, an approach that lifted the dollar and assuaged fears that President Donald Trump's intense pressure on chair Jerome Powell has eroded central bank independence.

Here's where 10 big central banks stand:

Thomson ReutersHow interest rates have changed among G10 central banks

1/ SWITZERLAND

Bets that the Swiss National Bank will use negative interest rates to tackle the seemingly unstoppable rise of the safe haven franchave faded after it kept benchmark borrowing costs on hold at 0% in June.

Traders regard another pause in September as near certain and speculate that the SNB has started intervening to weaken the franc.

Thomson ReutersSwitzerland's inflation and interest rates

2/ CANADA

The Bank of Canada held its key policy rate at 2.75% for the third straight meeting on Wednesday, citing lower risks of a severe and escalating global trade war.

But it declined to give detailed economic forecasts, citing uncertainty aroundU.S. trade policy, and said that if the economy weakened further it could cut rates again.

The BoC has eased rates by 225 basis points since June 2024, and markets see a reasonable chance of one more cut by year end.

Thomson ReutersCanada's inflation and interest rates

3/ SWEDEN

Ahead of Sweden's disappointing second quarter GDP data on Tuesday, the Riksbank cut its key rate to 2% last month and said policy could be eased again this year if inflation remains tame and growth remains weak.

Thomson ReutersSweden's inflation and interest rates

4/ NEW ZEALAND

The Reserve Bank of New Zealand, which has cut rates by 225 bps already this cycle, held borrowing costs steady earlier this month but said it expected to loosen monetary policy if price pressures continued to ease as expected.

Thomson ReutersNew Zealand's inflation and interest rates

5/ EURO ZONE

The European Central Bank held steady last week after cutting eight times in a year, and many analysts expect it is finished with easing this cycle.

The EU-U.S. trade deal took worst-case tariff scenarios off the table, and, alongside the ECB's relatively upbeat assessment of the economic outlook, allayed fears that inflation would fall significantly below its 2% target.

The ECB's main policy rate is currently at 2%, down from 4% a year ago, though markets see some chance of one more cut.

Thomson ReutersEuro zone inflation and ECB interest rates

6/ UNITED STATES

The Federal Reserve stayed on pause on Wednesday and traders responded to Chair Jerome Powell's comments by cutting bets that borrowing costs would begin to fall in September, putting $18 billion worth of bets on dollar weakness in danger.

That could stoke the ire of President Donald Trump who has demanded immediate and steep rate relief.

Powell said the Fed is focused on controlling inflation - not on government borrowing or home mortgage costs that Trump wants lowered.

He added that the risk of rising price pressures from the administration's trade and other policies remains too high for the Fed to begin loosening its "modestly restrictive" grip on the economy until more information is collected.

The Fed has been on hold all this year, and markets see less than a 50% chance of a rate cut in September.

Thomson ReutersUS inflation and interest rates

7/ BRITAIN

The Bank of England meets on Aug 7.

Markets expect a 25-bps rate cut even after data this month showed a surprise jump in inflation and a less-dramatic-than-feared cooling in the labour market.

Sticky inflation means the BoE has been more cautious than most with easing. Markets price two, 25-bp rate cuts by year-end - including an August move.

Thomson ReutersBritain's inflation and interest rates

8/ AUSTRALIA

The Reserve Bank of Australia is cautious too and surprised markets earlier this month by holding rates steady at 3.85%, as it awaited confirmation that inflation is continuing to slow.

Wednesday data showing Australian consumer prices grew at the slowest pace in over four years in the June quarter should help, and markets are near certain the RBA will cut its 3.85% cash rate by 25 bps next month, and continue easing to 3.10% by year end.

Thomson ReutersAustralia's inflation and interest rates

9/ NORWAY

Norway's central bank cut rates by 25 bps to 4.25% last month, its first reduction since 2020 but with only one more fully priced for 2025.

The Norges Bank has been the most cautious among developed market central banks, and data this month showing core inflation at 3.1% reinforced this stance.

Thomson ReutersNorway's inflation and interest rates

10/ JAPAN

The Bank of Japan, the sole major central bank in hiking mode, kept interest rates steady at 0.5% on Thursday, but revised up its inflation forecasts and offered a less gloomy outlook on the economy than three months ago.

Those changes maintained confidence about the BOJ resuming hikes this year.

Thomson ReutersJapan's inflation and interest rates

Source: Reuters

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ING

Economic

Forex

It is remarkable. Despite all the economic sluggishness and uncertainty in recent years, the eurozone labour market has remained as strong as ever. With unemployment at 6.2%, the domestic economy continues to be supported by historically low unemployment and income stability for Europeans.

As we have previously argued, the strong eurozone job market has been mainly driven by job growth in the south, whereas northern eurozone economies have seen unemployment run up modestly in recent years. In May, the broad pattern was no different as unemployment decreased in Spain, Italy and Portugal, while the rate remained stable in Germany, France, Belgium and the Netherlands. Austria and Finland experienced increases.

The eurozone economy is facing huge uncertainty now, but business surveys about activity and hiring actually don’t look that bad. This makes it likely that unemployment will continue to trend around the current all-time lows. Low unemployment dampens the impact of economic uncertainty on domestic demand, which contributes to our view of continued economic growth in the coming quarters.

Source: ING

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Daniel Carter

Central Bank

Economic

The Bank of Japan revised up its inflation forecasts on Thursday and offered a less gloomy outlook on the economy than three months ago, keeping alive the possibility of a resumption in interest rate hikes this year.

The central bank also said persistent rises in food costs could affect public perceptions of future price moves and push up underlying inflation, signalling its growing awareness of upside risks to prices.

In a widely expected decision, the BOJ kept its short-term policy rate steady at 0.5% by a unanimous vote.

The Bank of Japan (BOJ)'s interest rate remained unchanged at at 0.5% on July 31.

The central bank maintained a pledge to keep hiking borrowing costs if economic and price developments moved in line with forecasts, adding that Japan will see rising wages and prices push underlying inflation towards the bank's 2% target.

"If the economy and prices move in line with our forecast, we expect to continue raising interest rates and adjust the degree of monetary support in accordance with improvements in economic and price developments," BOJ Governor Kazuo Ueda told a news conference after the decision.

In a quarterly report released after the decision, the central bank said there were some "positive developments" in trade policies including Japan's bilateral deal with the U.S. struck earlier this month.

Underscoring its cautious optimism, the BOJ said in the report uncertainty surrounding the impact of U.S. trade policy "remains high" - a less pessimistic view than in May when it said uncertainty was "extremely high."

The central bank also sharply upgraded its inflation forecast for the current fiscal year and said risks to the price outlook were "roughly balanced."

The price risk assessment was more hawkish than in May when it said risks were "skewed to the downside," a sign the BOJ was growing more convinced Japan will progress towards meeting the prerequisite for further rate hikes.

The yen edged up to 148.60 per dollar after the BOJ's announcement, while the yield on the 5-year Japanese government bond (JGB) rose slightly to 1.105%.

"The inflation forecast being raised suggests a higher likelihood for a rate hike, which is why the yen is rallying a bit," said David Chao, global market strategist for Asia-Pacific at Invesco in Singapore.

"Today's announcement increases the chance of an earlier than expected rate hike. It's possible we could see a rate hike as soon as October."

Japan's trade deal struck with President Donald Trump this month lowers U.S. tariffs for imports of goods including its mainstay automobiles, easing the pain for the export-reliant economy and clearing a key hurdle for further BOJ rate hikes.

The positive development contrasted with the gloom that surrounded the economy when the BOJ produced previous quarterly estimates in early May, when market turmoil was at its peak due to Trump's sweeping "reciprocal" tariffs.

Still, the BOJ downgraded its assessment on consumption for the first time since March last year, and warned it would stagnate for the time being, squeezed by higher prices.

In the report, the BOJ revised up this fiscal year's core consumer inflation forecast to 2.7% from 2.2% projected three months ago. It expects inflation to hit 1.8% in fiscal 2026 and 2.0% in 2027.

Underscoring its caution on mounting price pressure, the central bank said rises in food costs could "persist for longer than expected" and have second-round effects on underlying inflation.

The BOJ exited its decade-long, massive monetary stimulus last year and raised rates to 0.5% in January on the view Japan was progressing towards durably achieving its price goal.

While Governor Ueda has signalled a pause in rate hikes after Trump's April 2 announcement of "reciprocal" tariffs, Japan's trade deal with the U.S. has revived market expectations of an increase in its short-term policy rate to 0.75% by year-end.

A Reuters poll, taken before the Japan-U.S. trade deal announcement earlier this month, showed a majority of economists expect the BOJ to raise rates again by year-end.