Asian currencies weakened slightly on Friday as traders awaited the release of the Federal Reserve’s preferred inflation measure to refine bets on a September rate cut. The Indian rupee moved closer to record lows under pressure from fresh U.S. tariffs.
Market participants also examined Tokyo inflation figures and other Japanese economic indicators to gauge expectations for possible Bank of Japan rate hikes.
The U.S. Dollar Index, which tracks the greenback against a basket of major currencies, rose 0.2% during Asian trading hours, though it remained set for a nearly 2% monthly decline. Futures on the index also gained 0.2% as of 03:12 GMT.
Fed independence concerns weigh on sentiment
Political uncertainty added to the cautious mood after President Donald Trump attempted to dismiss Federal Reserve Governor Lisa Cook, citing past allegations of mortgage fraud. Cook has contested Trump’s authority, filing a lawsuit to challenge the move.
Analysts warn the dispute could undermine the Fed’s independence and credibility, creating fresh headwinds for the U.S. dollar. ING noted that the key question is whether Cook will be able to continue voting on the Federal Open Market Committee (FOMC) while the case proceeds through court.
Despite these concerns, investors remain confident the Fed will cut rates next month, with markets currently pricing in over an 85% probability of a 25-basis-point reduction. Traders are closely awaiting the U.S. personal consumption expenditures (PCE) price index, the central bank’s preferred inflation gauge, due later today.
Regional currency moves
The Japanese yen’s USD/JPY pair rose 0.1% after data showed Tokyo inflation eased in August, though underlying price pressures suggest more BOJ rate hikes remain possible. Separate figures revealed weaker factory output and soft retail sales.
In China, the yuan was little changed, with USD/CNY steady and USD/CNH up 0.1%. The Singapore dollar edged 0.1% higher, while the South Korean won rose 0.2%. The Australian dollar was broadly flat.
The Indian rupee (USD/INR) slipped 0.2% and was on track for a 0.5% weekly loss, nearing record lows of 87.99. The currency has faced persistent pressure since May, particularly after Trump’s tariff hikes on Indian imports. A 25% additional duty, which took effect Wednesday, doubled total tariffs to 50% in response to India’s continued purchases of Russian oil.
The rupee is heading for its fourth straight monthly decline and has fallen in eight of the past nine weeks.
