Most Asian currencies ticked higher on Thursday after suffering notable losses in the prior session, while the U.S. dollar held close to a two-month peak following signals from the Federal Reserve that further policy tightening remains possible.
The U.S. Dollar Index climbed 0.2% in Asian trading, coming on the back of a 0.6% jump that took it to its strongest level since late March in the previous session.
The Fed left its policy rate unchanged on Wednesday as market participants broadly expected, but its updated forward guidance indicated that policymakers still saw room for additional tightening later this year. Revised projections showed that nine of 19 Fed officials anticipate at least one rate increase in 2026. Futures markets reacted by pricing in an 83% probability of a rate rise by December, according to the CME FedWatch tool, which supported rising Treasury yields and lent strength to the dollar.
Among Asian currencies, the Japanese yen remained under the spotlight. The USD/JPY pair eased 0.1%, but stayed close to its strongest levels seen since 2024. On Wednesday the pair surged to as high as 160.80 yen, eclipsing levels reached in late April that had prompted official intervention. ING analysts noted that Japanese authorities are likely preparing for the possibility of the dollar moving further into the 162/163 area before another intervention would be necessary.
South Korea's won regained some ground after a sharp move the previous day: USD/KRW fell 0.4% following a 1.2% surge in the prior session. The Australian dollar rose 0.3% after dropping 0.7% on Wednesday. The Chinese onshore USD/CNY market was largely unchanged across the Asian session, while the Singapore dollar (USD/SGD) and the Indian rupee (USD/INR) also recorded only minor moves.
Market sentiment received additional support from softer crude oil prices after the United States and Iran signed an interim peace accord. The agreement extends a ceasefire and establishes a framework for negotiations toward a broader settlement. That development lowered concerns over prolonged disruptions to Middle East energy supplies and helped push oil prices down, reducing immediate inflationary pressure for major energy-importing economies in Asia.
Still, market commentary emphasized that the dollar may remain well supported in the near term because of expectations that the Fed will keep policy restrictive for longer. That outlook continues to shape Treasury yields and provides a structural backdrop supporting the dollar versus a range of Asian currencies.
Key points
- Federal Reserve signaled potential for further tightening later this year; futures show an 83% chance of a December rate hike, supporting Treasury yields and the dollar.
- Japanese yen remained near its best levels since 2024 after USD/JPY spiked to 160.80, raising the prospect of more FX intervention if the pair moves toward 162/163.
- Oil prices fell after an interim U.S.-Iran agreement extended a ceasefire and set a framework for broader talks, easing inflation concerns for energy-importing Asian economies.
Risks and uncertainties
- Monetary policy risk - The Fed's indication that rates could rise later this year creates the possibility of further dollar strength and higher Treasury yields, affecting bond markets and import-dependent sectors.
- FX intervention risk - Renewed upward pressure on USD/JPY could prompt additional official action from Japanese authorities, creating volatility in currency markets and impacting trade-sensitive industries.
- Energy market uncertainty - While the interim U.S.-Iran accord eased near-term supply disruption fears and pressured oil prices lower, any change in the security situation could quickly alter inflation dynamics for Asian importers.