Asian Currencies Steady as Dollar Weakens on Fed Rate Cut Bets
Most Asian currencies traded in a tight range on Friday, while the U.S. dollar extended its recent decline, as markets grew increasingly confident that the Federal Reserve will cut interest rates again in October.
Renewed U.S.-China trade tensions and the ongoing U.S. government shutdown added further pressure on the greenback, which was set for its worst weekly performance in nearly three months.
Regional Currencies Gain on Dollar Weakness
Most Asian currencies posted modest weekly gains, supported by expectations of lower U.S. interest rates. The Japanese yen led the rally, while the Indian rupee also strengthened on central bank support and signs of easing trade friction with Washington.
Yen Strengthens as BOJ Governor Signals More Rate Hikes
The Japanese yen firmed on Friday, with the USD/JPY pair slipping 0.2% for the day and nearly 0.7% for the week.
Bank of Japan Governor Kazuo Ueda said Thursday that the central bank could continue raising interest rates if confidence in meeting economic goals improves.
Although Ueda gave no specific timeline or figures, his remarks kept the yen supported ahead of the late-October BOJ policy meeting. Political uncertainty also contributed to yen strength after LDP leader Sanae Takaichi’s leadership faced challenges, causing investors to trim bets on new fiscal stimulus.
Takaichi’s initial victory had triggered a sharp yen sell-off, much of which was reversed this week as sentiment improved.
Broader Asia FX Steady, Dollar Heads for Weekly Loss
Across the region, Asian currencies remained flat on Friday but were still poised for weekly gains as the dollar continued to retreat.
The U.S. dollar index fell 0.2% on Friday and was down 0.8% for the week, marking its biggest drop since mid-July.
The decline came as investors priced in another Federal Reserve rate cut, following dovish comments from Fed Chair Jerome Powell earlier in the week.
Lingering worries about the U.S. economy, fueled by the government shutdown and renewed stress among regional banks, further weakened the dollar.
Rupee and Yuan Supported by Policy Actions
The Indian rupee was the best-performing Asian currency this week, with the USD/INR pair down nearly 1%. Analysts attributed the move to Reserve Bank of India intervention and improving U.S.-India trade relations, following President Donald Trump’s remarks about reduced Russian oil imports by India.
Meanwhile, the Chinese yuan traded largely stable, with the USD/CNY pair flat on Friday and down 0.2% for the week. The People’s Bank of China’s strong midpoint fixes helped offset weak inflation data and rising trade tensions with the U.S.
The Australian dollar slipped 0.2% after weak labor market data reinforced expectations of further interest rate cuts by the Reserve Bank of Australia.
The South Korean won rose 0.2% on Friday but remained down 0.7% for the week, while the Singapore dollar inched higher after a strong rebound in non-oil exports during September.
