Most Asian currencies moved higher against the U.S. dollar on Monday as a sharp drop in oil prices, driven by a pause in recent hostilities between the United States and Iran, undercut safe-haven demand for the greenback and diminished immediate fears of another inflationary shock ahead of key central bank meetings this week.
The U.S. Dollar Index dipped about 0.3% following the retreat in energy prices. The Japanese yen saw improved safe-haven flows as the dollar declined roughly 0.2% to near 163.6 yen. Commodity-linked currencies also benefited, with both the Australian dollar and the New Zealand dollar rising by about 0.2% each.
Oil move and geopolitical pause
Brent crude dropped more than 5% during Asian trading after reports that Washington paused a two-week military campaign against Iran over the weekend. Tehran said it would suspend retaliatory attacks provided the United States refrains from additional strikes. That lull followed diplomatic engagement led by China and helped ease concerns about an extended disruption to Middle Eastern supply, supporting a broader shift back to risk-on sentiment.
Investors interpreted the decline in energy prices as a factor that could ease inflationary pressures that had recently reinforced expectations of tighter monetary policy. As a result, attention shifted to central bank decisions scheduled for later in the week.
Policy calendar and market pricing
The Federal Reserve’s policy decision on Wednesday is the focal point for global markets, followed by meetings of the Bank of England and the Bank of Japan. The Fed is widely expected to hold interest rates steady. Nevertheless, policymakers are anticipated to maintain a cautious tone given recent weeks of elevated oil prices and persistent inflation concerns.
Fed funds futures, according to the CME FedWatch Tool, currently assign a 33.7% probability to a 25-basis-point hike this week, down from 37.4% on Friday. That shift in odds reflects growing market confidence that easing geopolitical tensions could reduce immediate inflation risks.
Regional currency moves and an outlier
Most regional Asian currencies strengthened as the dollar eased. Both offshore and onshore Chinese yuan gained roughly 0.2%. The USD/TWD and USD/INR pairs each fell about 0.2% against the dollar.
Indonesia’s rupiah diverged from the broader regional recovery, weakening about 0.5% after Bank Indonesia Governor Perry Warjiyo unexpectedly resigned. Senior Deputy Governor Destry Damayanti was named interim governor. The leadership change raised concerns about the central bank’s independence and the future direction of monetary policy, prompting some investor unease.
Against that backdrop, the USD/IDR climbed as much as 0.3% while the Jakarta benchmark stock index, the JKSE, slipped as much as 0.8%.
Outlook and immediate focus
Markets will continue to watch developments around central bank communications later in the week and assess whether policymakers, particularly at the Bank of Japan, will reinforce expectations for further policy normalization amid lingering inflation pressures. The yen recorded its largest single-day gain since July 10 as investors weighed the evolving policy and inflation outlook.