Asian Currencies Recover Slightly as Dollar Pulls Back on Fed Signals and Iran Tensions
Most Asian currencies moved slightly higher on Thursday, recovering part of their sharp losses from the previous session. The rebound came as the U.S. dollar eased after gaining strongly on the back of hotter-than-expected inflation data and mixed signals from the Federal Reserve.
The Japanese yen remained steady, hovering near its weakest level since mid-2024 after the Bank of Japan (BOJ) decided to keep interest rates unchanged, in line with market expectations.
Regional currencies broadly advanced following Wednesday’s decline, while the dollar retreated after its recent surge. However, rising oil prices—driven by the escalating U.S.-Israel conflict with Iran—continued to weigh on market sentiment and kept investors cautious across Asia.
Japanese Yen Holds Near Multi-Month Lows After BOJ Decision
The Japanese yen showed limited movement, with the USD/JPY pair slipping 0.1% after a strong overnight rally. The pair remains close to its highest level since mid-2024, reflecting continued weakness in the yen.
The Bank of Japan maintained its benchmark interest rate at 0.75%, as widely expected. Only one member of the nine-person policy board supported a modest 25 basis point rate hike.
The central bank highlighted concerns over rising oil prices linked to the Iran conflict, while also noting that inflation in Japan may ease in the short term. However, the BOJ expects inflation to gradually rise again toward 2026, which could open the door for further rate hikes in the future.
Attention is also on other major central banks, including the Bank of England, European Central Bank, and Swiss National Bank, all of which are scheduled to announce policy decisions later in the day.
Dollar Weakens Slightly After Strong Gains; Asia FX Stabilizes
The U.S. dollar edged lower on Thursday, with the dollar index and its futures falling 0.3% and 0.1%, respectively, after posting strong gains in the previous session.
The greenback had surged following stronger-than-expected U.S. producer price index (PPI) data for February, raising concerns that inflation pressures may be returning.
The Federal Reserve kept interest rates unchanged but warned that inflation could rise further due to increasing energy costs. This outlook has reduced expectations for near-term rate cuts.
Federal Reserve Chair Jerome Powell also emphasized uncertainty surrounding the economic impact of the Iran conflict, which has now entered its third week.
Ongoing geopolitical tensions and rising oil prices have heightened concerns that inflation could remain elevated globally, potentially keeping interest rates higher for longer.
Asian Currency Moves Mixed Amid Global Uncertainty
Among regional currencies, the Chinese yuan weakened slightly, with USD/CNY rising 0.3%. The Singapore dollar strengthened modestly, as USD/SGD fell 0.2%.
The Australian dollar outperformed its peers, with AUD/USD gaining nearly 0.4% after stronger-than-expected employment data for February, despite a slight increase in the unemployment rate.
Meanwhile, the South Korean won strengthened significantly, with USD/KRW dropping 0.7%. The Indian rupee stabilized around 92.9 per dollar after hitting a record low above 93 in the previous session.
