Overview
Asian foreign exchange markets were largely contained on Tuesday as the U.S. dollar remained firm near multiyear highs and the euro continued to face pressure close to a 17-month low. Investors balanced a weaker-than-expected U.S. services reading that reduced the probability of an imminent Federal Reserve rate hike against evidence of persistent inflationary pressure, while longer-dated U.S. Treasury yields stayed elevated and provided ongoing support to the greenback.
Dollar and major pairs
The U.S. dollar index sat around 102.11, largely unchanged after touching 102.21 and marking an 18-month peak in the prior session. The EUR/USD rate was trading about 1.123, while GBP/USD inched up slightly to 1.3224. USD/JPY was near 157.92 with little movement, AUD/USD held at $0.698 and NZD/USD was about 0.560.
Market reaction reflected mixed signals from U.S. data. Although the services sector slowed in September, the report showed that robust domestic demand continued to strain supply chains and pushed businesses' prices paid higher. That combination trimmed expectations for an immediate Fed hike but suggested inflation could remain elevated, constraining how quickly policy might be eased in coming months.
Yields keep dollar supported
Analysts and market participants continued to point to the rise in Treasury yields as a main pillar for the dollar's strength. With longer-dated U.S. borrowing costs staying high, the dollar found support as markets weighed inflation outcomes, fiscal risks and the future path of monetary policy.
Euro pressured by fiscal and energy concerns
The euro was trading near $1.1225 after falling to its weakest since May 2025 in the previous session. The currency has extended a roughly 1.2% decline over the week amid political uncertainty and fiscal worries across the euro area. Higher energy costs and the possible knock-on effects for growth and inflation added to the strain, with markets also considering the chance that the European Central Bank may need to hold policy tighter for longer.
Indian rupee edges toward record low amid RBI smoothing
The Indian rupee was expected to open modestly weaker, leaving USD/INR around 96.58 as rising long-dated U.S. Treasury yields and a stronger dollar tied to euro weakness weighed on the currency. The rupee settled at 96.2925 on Monday, placing it roughly 0.6% away from its record low near 96.96 reached in May.
Market commentary noted that the Reserve Bank of India has been more active intervening in foreign-exchange markets, selling dollars when the rupee weakens to slow the pace of depreciation rather than to fully prevent it.
Regional FX and policy watch
China's yuan remained broadly steady, with USD/CNH around 6.702 and USD/CNY at 6.705. Onshore trading activity was subdued as China observed a week-long National Day holiday.
Other regional pairs were also mostly unchanged: USD/KRW was around 1,341.40 and USD/SGD about 1.2791.
Bank of America flagged several regional policy and economic risks: Indonesia faces slower growth and higher inflation risks; Malaysia may raise rates to 3% in November; the Philippines is dealing with renewed inflation and fiscal pressures; and Singapore could require additional tightening while core inflation stays elevated. Thailand's recovery, the bank noted, benefits from AI investment and fiscal measures but remains exposed to oil-price shifts and flooding, with rates expected to stay unchanged through 2027.
What this means for markets
FX markets are currently navigating a mix of sticky inflation signals from the U.S., elevated Treasury yields that favor the dollar, and country-specific policy reactions across Asia and Europe. Liquidity patterns — for example, lower onshore volumes in China during the National Day holiday — also contributed to the restrained price action in the region.
Data points and levels cited in this report reflect market conditions noted during the observed trading sessions and statements from market participants and institutions as described above.