Dollar Weakens as Euro Rises Ahead of ECB Decision
The U.S. dollar edged lower on Thursday, while the euro approached a one-week high ahead of the European Central Bank’s latest interest-rate decision.
Investors assessed the outlook for monetary policy alongside renewed geopolitical tensions in the Middle East.
The U.S. Dollar Index slipped slightly to around 101.02. Meanwhile, the euro remained close to its strongest level against the dollar in nearly a week before the ECB announcement.
ECB Expected to Keep Interest Rates Unchanged
The European Central Bank is widely expected to leave interest rates unchanged.
However, investors will closely examine the ECB’s statement for clues about future policy. In particular, markets want to know whether officials remain open to another interest-rate increase later in 2026.
Higher oil prices have increased concerns that inflation could strengthen again. As a result, policymakers may need to maintain a cautious approach toward future rate cuts or additional tightening.
Middle East Tensions Support Safe-Haven Demand
Fresh U.S. strikes against Iran and attacks on oil tankers by Yemen’s Iran-backed Houthi movement kept Brent crude above $95 per barrel.
Rising geopolitical risks and higher energy prices supported some demand for the dollar as a safe-haven currency. Therefore, losses in the U.S. currency remained limited.
Japanese Yen Remains Near a 40-Year Low
The Japanese yen remained close to its weakest level since December 1986.
The USD/JPY exchange rate traded near 163.1 after reaching approximately 163.23 earlier in the week. Investors continued to assess the Bank of Japan’s policy outlook and the possibility of intervention by Japanese authorities.
The yen recovered slightly on Wednesday following reports that some Bank of Japan officials were becoming more open to faster interest-rate increases.
Officials are increasingly concerned that prolonged weakness in the yen could raise import costs and add to inflationary pressure.
Bank of Japan Rate Decision in Focus
The Bank of Japan is still expected to keep interest rates unchanged at its July 31 meeting.
Nevertheless, markets have modestly increased expectations for another rate hike later in the year.
Japan’s Ministry of Finance also repeated that authorities remain prepared to respond if currency movements become excessive or disorderly.
Strong South Korea GDP Data Lifts the Won
The South Korean won strengthened following better-than-expected economic growth figures.
The USD/KRW exchange rate fell by approximately 0.5% to 1,469.41 won. This made the won one of the strongest-performing Asian currencies during the session.
South Korea’s economy expanded by 0.6% in the second quarter of 2026. The result exceeded forecasts for growth of 0.4%.
Although economic growth slowed from the exceptionally strong first quarter, the latest figures strengthened expectations that the Bank of Korea could raise interest rates again at its August meeting.
AI and Semiconductor Exports Support South Korea
ANZ analysts said resilient semiconductor exports should continue to support the South Korean economy.
The country has benefited from its important role in the global artificial intelligence investment boom. Growing demand for memory chips and advanced semiconductor products has helped offset weakness in other parts of the economy.
However, higher oil prices could increase import costs and create broader inflation risks.
The won also gained support from South Korea’s plans to make the currency more accessible internationally.
Proposed reforms include expanded offshore trading, easier access for foreign investors and simpler foreign-exchange regulations. Analysts believe these measures could increase long-term demand for won-denominated assets.
Indonesian Rupiah Holds Steady
The Indonesian rupiah was little changed after Bank Indonesia unexpectedly kept its benchmark seven-day reverse repo rate at 5.75%.
Many economists had expected another increase following two consecutive rate hikes.
Instead, Governor Perry Warjiyo announced measures designed to attract foreign capital. These included reducing the cost of foreign-exchange hedging and encouraging greater use of regional currencies in cross-border transactions.
The USD/IDR exchange rate traded near 17,921.5 rupiah. The Indonesian currency remained above the record lows recorded in June.
Indian Rupee Receives Support From RBI Programme
The USD/INR exchange rate edged higher to around 96.66.
However, Citi expects the Indian rupee to receive medium-term support from the Reserve Bank of India’s foreign-currency deposit swap programme.
Stronger-than-expected inflows could gradually increase India’s foreign-exchange reserves. They may also improve liquidity in the banking system and help move the rupee toward a more balanced valuation.
Australian Dollar Rises After Strong Jobs Data
The Australian dollar strengthened after employment data pointed to a resilient labour market.
Australia’s unemployment rate remained unchanged at 4.4%. A rise in labour-force participation offset stronger hiring during the period.
The figures reinforced expectations that the Reserve Bank of Australia could resume raising interest rates.
Investors are now awaiting Australia’s second-quarter inflation report, which could provide further guidance on the central bank’s next policy move.
The Australian dollar gained around 0.2%, trading close to A$0.7010 against the U.S. dollar.
