A woman holds a five-hundred-rupee currency note in the old quarters of Delhi, India, September 25, 2025. REUTERS/Bhawika Chhabra

By Jaspreet Kalra and Dharamraj Dhutia

MUMBAI (Reuters) -The Indian rupee is likely to respond this week to the fallout from renewed U.S.-China trade tensions, with support from the central bank, while government bonds will take cues from domestic inflation print and demand-supply dynamics.

The rupee closed at 88.6850 on Friday, up 0.1% on the week, as it found some breathing room after a stretch of muted price action. The Reserve Bank of India's frequent interventions have kept the rupee from breaching its all-time low of 88.80, last touched on September 30.

U.S. President Donald Trump revived the trade war against Beijing on Friday, unveiling levies of 100% on Chinese exports to the world's largest economy along with new export controls on "any and all critical software" by November 1, nine days before existing tariff relief is set to expire.

U.S. stocks and the dollar weakened after Trump announced the levies. The dollar index fell 0.5% on Friday but managed to notch a 1% rise week-on-week.

The rupee remains in a firm downtrend, and traders believe that without a rebound in portfolio flows or positive signals from U.S.-India trade talks, downward pressure is likely to persist.

"Importers are advised to buy into any dips. Exporters are advised to hedge in a calibrated manner, as we believe Rupee depreciation will likely happen in a controlled, step-wise manner," FX advisory firm IFA Global said in a note.

Meanwhile, India's 10-year benchmark 6.33% 2035 bond yield settled at 6.5370% on Friday, marginally higher week-on-week.

Yields eased in the initial part of the week after a positive surprise from the state debt calendar. However, the trend reversed due to persistent concerns over demand for the 10-year part of the curve.

Indian states will borrow 2.82 trillion rupees ($31.7 billion) via the sale of bonds in the October-December quarter, lower than most market estimates.

The September consumer price index data, due later in the day, is likely to show that the inflation rate eased below the lower end of the RBI's 2-6% target range to 1.70%, per economists polled by Reuters.

Market participants say yields may decline if inflation undershoots estimates, but rule out any major slide. Traders anticipate the benchmark yield to remain in the 6.49% to 6.55% band this week.

Inflation is expected to slip back below 2%, keeping the July-September average at 1.7-1.8%. Indian 10-year bond yield is likely to have topped off for now, and there could be a gradual move towards 6.40%, said Radhika Rao, senior economist at DBS Bank.

Underlying sentiment has improved after RBI Governor Sanjay Malhotra said lower inflation has opened up room for policy space and that he is confident 10-year bond yield will fall further.

A majority of market participants now expect a rate cut in December, after a pause in August and October, with Nomura and MUFG predicting another move in February.

KEY EVENTS: India ** September CPI inflation - October 13, Monday (4:00 p.m. IST)(Reuters poll 1.70%) ** September WPI inflation - October 14, Tuesday (12:00 p.m. IST)(Reuters poll 0.50%)

U.S.

** October Philly Fed Business index - October 16, Thursday (6:00 p.m. IST)

** September PPI machine manufacturing - October 16, Thursday (6:00 p.m. IST)

** September retail sales - October 16, Thursday (6:00 p.m. IST)

** September housing starts numbers - October 17, Friday (6:00 p.m. IST) ** September import prices - October 17, Friday (6:00 p.m. IST)

** September industrial production - October 17, Friday (6:45 p.m. IST)

(Reporting by Jaspreet Kalra and Dharamraj Dhutia; Editing by Sherry Jacob-Phillips)