Most Asian currencies traded in a narrow range on Friday as investors evaluated the Federal Reserve’s policy outlook for next year following its latest interest rate cut. The Indian rupee, however, extended its decline and fell to new record lows, weighed down by ongoing capital outflows and sustained dollar demand.
The U.S. Dollar Index was largely unchanged on the day but remained on course for a third consecutive weekly decline. Markets continued to reassess how many interest rate cuts the Fed may ultimately deliver in 2026 after Wednesday’s policy decision.
Indian rupee slides to fresh record low
In India, the rupee weakened past the 90-per-dollar mark once again, touching a new all-time low. The USD/INR pair was last up around 0.3% at 90.55, surpassing the previous session’s record low of 90.48.
Pressure on the currency stemmed from persistent foreign portfolio outflows, strong dollar buying by domestic corporates, and uncertainty surrounding a potential U.S.-India trade agreement. The absence of progress in tariff negotiations has kept investor sentiment cautious, intensifying downward pressure on the rupee even as the Reserve Bank of India was reportedly active in the market to limit excessive volatility.
Markets weigh Fed outlook after rate cut
The Federal Reserve lowered its benchmark interest rate by 25 basis points on Wednesday, taking borrowing costs to their lowest level in nearly three years. The decision included three dissenting votes, underscoring growing divisions among policymakers over the pace of future easing.
Updated economic projections showed that officials now expect only one rate cut in 2026, a more restrained outlook than markets had anticipated. Fed Chair Jerome Powell reiterated that policy decisions would remain data-dependent, pointing to ongoing uncertainties around inflation trends and labour market conditions.
Fresh U.S. labour data added complexity to the outlook. Initial jobless claims rose sharply by 44,000 to 236,000 last week, marking the largest weekly increase in almost four and a half years. While part of the jump was attributed to seasonal adjustment issues, the data renewed questions about the resilience of the U.S. labour market as the Fed considers its next moves.
Across the rest of Asia, currency moves were modest. The Japanese yen edged lower, with USD/JPY up 0.1%, while USD/SGD was flat. The South Korean won strengthened slightly, pushing USD/KRW down about 0.1%, and the onshore Chinese yuan was little changed against the dollar. Meanwhile, the Australian dollar slipped 0.1% against the greenback.
