Asian currencies traded in narrow ranges on Thursday as the US dollar remained close to an 18-month high. Meanwhile, the Japanese yen weakened slightly as investors assessed the latest Federal Reserve meeting minutes and fresh economic data from Japan.
Although the dollar maintained its strength, expectations that the Federal Reserve will leave interest rates unchanged at its upcoming policy meeting limited further gains.
The US Dollar Index hovered around 102.24 after climbing 0.3% on Wednesday. The index remained near its highest level since April 2025, supported by elevated Treasury yields and persistent inflation concerns.
In the Asian forex market, USD/JPY edged 0.05% higher to approximately 158.15. Meanwhile, the Australian dollar declined 0.1% to $0.6957, while the New Zealand dollar slipped 0.2% to $0.5603.
US Dollar Holds Firm as Federal Reserve Rate Pause Expectations Grow
The US dollar continued to benefit from the Federal Reserve’s cautious monetary policy outlook, although investors increasingly expect policymakers to pause further interest rate increases in October.
Minutes from the Fed’s September meeting revealed that officials remain concerned about persistent inflation. However, policymakers expressed differing views about the justification for the latest 25-basis-point interest rate increase.
Despite the hawkish tone, the minutes did not significantly change market expectations for the Fed’s October 28 policy decision.
According to CME FedWatch data cited in the report, traders assigned a 19% probability to another quarter-percentage-point rate increase. That figure remained unchanged from the previous trading session.
DBS analysts also suggested that the central bank could keep borrowing costs steady in October before potentially raising rates again at its December 9 meeting.
Consequently, the dollar’s near-term direction may depend on upcoming inflation indicators and whether economic conditions justify further monetary tightening.
Rising US Inflation Expectations Add Pressure to Financial Markets
Inflation remains a major concern for investors, particularly as rising energy prices threaten to increase costs across the US economy.
The Federal Reserve Bank of New York reported that consumers’ one-year inflation expectations climbed to 3.9% in September, reaching their highest level in three years.
Meanwhile, DBS highlighted renewed pressure in US fuel markets. Although West Texas Intermediate crude oil prices remained below their April peak, gasoline prices approached their 2026 highs.
Diesel prices also reached fresh highs as tight distillate supplies continued to affect energy markets.
These developments could challenge the assumption that strong domestic energy production protects the United States from international oil price shocks.
Higher fuel costs may keep inflation elevated, complicating the Federal Reserve’s monetary policy decisions. However, the resulting economic uncertainty could also limit the dollar’s upside despite higher interest rates.
Japanese Yen Weakens Despite Stronger Economic Data
The Japanese yen remained under pressure against the US dollar, with USD/JPY trading near 158.15 after briefly reaching 158.22.
Japan’s latest economic figures provided some positive signals. The country’s current-account surplus climbed to ¥4.062 trillion in August, exceeding the median market forecast of ¥3.19 trillion.
A stronger current-account surplus generally supports Japan’s external financial position and can provide underlying support for the yen.
Nevertheless, the Japanese currency struggled to recover as investors continued to evaluate the Bank of Japan’s monetary policy outlook.
Recent signals from the BOJ indicated that policymakers remain divided over when to implement additional interest rate increases.
Market participants are also weighing the potential impact of government spending, rising Japanese bond yields and broader economic uncertainty.
Furthermore, the yen remains vulnerable to volatility because Japanese authorities have repeatedly warned against excessive currency depreciation.
These warnings have increased speculation about possible intervention in the foreign exchange market if the yen weakens too rapidly.
Indian Rupee Near Record Low Despite Hawkish RBI Decision
The Indian rupee continued to face selling pressure on Thursday, despite a more restrictive monetary policy stance from the Reserve Bank of India.
The USD/INR currency pair advanced 0.2% to approximately 96.987, keeping the rupee close to its recent record low.
At its latest policy meeting, the RBI increased its benchmark repo rate by 25 basis points to 5.50%.
RBI Governor Sanjay Malhotra indicated that future monetary policy decisions would depend on inflation developments and broader economic conditions.
Although higher domestic interest rates can support a currency by attracting capital inflows, the rupee remains exposed to significant external pressures.
These include the stronger US dollar, elevated American Treasury yields and crude oil prices above $100 per barrel.
India’s dependence on imported energy makes rising oil prices particularly important for its currency outlook.
Therefore, while the RBI’s hawkish position may provide some support, international market developments are likely to remain the dominant influence on USD/INR.
Chinese Yuan Returns to Focus After National Day Holiday
Chinese financial markets reopened on Thursday following the week-long National Day holiday, bringing renewed attention to the yuan and broader Asian currency movements.
The offshore yuan weakened marginally, with USD/CNH rising to approximately 6.704.
Meanwhile, the onshore yuan strengthened slightly as USD/CNY declined to around 6.703.
Elsewhere in Asia, the South Korean won posted modest gains against the dollar. The USD/KRW pair slipped 0.1% to approximately 1,337.43.
The Singapore dollar remained relatively stable, with USD/SGD showing little movement during the session.
Overall, Asian currencies displayed limited directional momentum as investors balanced strong US dollar demand against expectations for a possible pause in Federal Reserve tightening.
Asian Currency Outlook: Fed Policy, Oil Prices and Bond Yields Remain Key
The near-term outlook for Asian currencies will likely depend on three major factors: US monetary policy, global energy prices and movements in government bond yields.
If inflation remains elevated, the Federal Reserve could maintain restrictive financial conditions for longer than markets currently anticipate.
Such a scenario may continue supporting the US dollar while creating additional challenges for Asian currencies, particularly those sensitive to energy imports and international capital flows.
However, a clearer indication that the Fed intends to pause its tightening cycle could ease some pressure on regional currencies.
The Japanese yen will also remain sensitive to Bank of Japan policy expectations and the possibility of government intervention.
For now, the US dollar’s position near an 18-month high reflects the cautious mood across global currency markets, with traders closely monitoring inflation data and central bank decisions for the next major move.
