Foreign exchange markets across Asia and Europe came under renewed pressure on Wednesday as higher crude oil prices and rising U.S. Treasury yields strengthened the U.S. dollar.
The move pushed the Indian rupee close to record lows, while the euro remained near multi-month weakness against the greenback.
The U.S. Dollar Index rose around 0.3% to 102.15 after recovering from earlier losses. At the same time, the benchmark 10-year U.S. Treasury yield climbed three basis points to approximately 5.31%.
Oil Prices Support the U.S. Dollar
The dollar gained additional support as Brent crude oil moved above $101.50 per barrel.
Oil prices increased following renewed drone and missile attacks linked to Iran-backed forces targeting maritime traffic around the Strait of Hormuz.
Higher energy prices have raised concerns about inflation and global economic growth, strengthening demand for the U.S. dollar as investors reassess risk.
Indian Rupee Nears Record Low
The Indian rupee was among the weakest major Asian currencies during the session.
USD/INR rose sharply as the rupee fell around 0.5%, moving toward an all-time low near 96.84 per dollar.
The decline came despite the Reserve Bank of India raising interest rates by 25 basis points.
The move lifted the RBI’s benchmark repo rate to 5.50% and marked its first rate increase since early 2023.
RBI Adopts More Hawkish Policy Stance
Reserve Bank of India Governor Sanjay Malhotra also adopted a more restrictive policy tone.
The central bank shifted its policy stance toward “calibrated tightening” and increased its FY27 inflation forecast to 5.2%.
The RBI also signaled that interest-rate cuts are unlikely in the near term.
However, the rate increase offered limited support to the rupee because financial markets had already largely priced in the decision.
High oil prices and continued capital outflows from emerging-market debt added further pressure on the Indian currency.
Capital India Finance CEO Pinank Shah said the RBI’s decision reflected the increasingly uncertain global economic environment, particularly as geopolitical tensions add to inflation risks and financial-market volatility.
He also suggested that further rate increases remain possible following the central bank’s shift toward tighter monetary policy.
Euro Remains Under Pressure
The euro also struggled against the U.S. dollar.
EUR/USD fell around 0.4% to approximately $1.1217, leaving the currency pair close to a 17-month low.
Against the British pound, the euro dropped to around 0.8456, its weakest level in approximately 16 months.
Concerns about France’s growing budget deficit continued to weigh on investor sentiment.
Political uncertainty in Spain also contributed to weaker confidence in European assets.
Japanese Yen Weakens Against Dollar
The Japanese yen also moved lower, falling around 0.2% to approximately 158.38 per dollar.
Incoming Bank of Japan board member Ayano Sato expressed support for gradual interest-rate increases.
However, expectations of additional government spending through a supplementary budget continued to limit support for the yen.
Lloyd’s Bank FX strategist Nicholas Kennedy suggested that dollar strength could continue because financial conditions remain relatively more supportive in the United States than in Europe.
He also noted that Europe remains more exposed to supply-side economic risks.
Markets Await FOMC Minutes
Attention is now turning to the Federal Reserve’s September meeting minutes.
Currency traders are looking for fresh clues about how long U.S. interest rates could remain elevated.
Recent softer employment data has reduced expectations for an October Federal Reserve rate increase.
Markets now assign roughly a 20.5% probability to an October hike, down significantly from around 51% one week earlier.
However, traders continue to price a much higher probability of another increase later in the year, with expectations for a December rate hike standing near 84.5%.
Fed Officials Could Shape Dollar Outlook
Investors are also monitoring upcoming remarks from several Federal Reserve officials.
Christopher Waller, Neel Kashkari and Alberto Musalem are expected to provide further guidance on the central bank’s outlook for inflation, interest rates and economic growth.
Any indication that the Federal Reserve plans to keep rates elevated for longer could provide additional support for the U.S. dollar.
For now, the combination of higher oil prices, rising Treasury yields and geopolitical uncertainty continues to pressure the euro, Indian rupee and other major currencies.
