The dollar held its gains in Asian trading on Thursday, buoyed by signals of a firmer Federal Reserve stance after its most recent policy meeting. The greenback's resilience pushed several Asian currencies lower as markets digested the implications of a perceived hawkish tilt by the U.S. central bank.
Fed meeting and policy signals
The Fed left benchmark interest rates unchanged, as had been widely expected, yet the policy statement showed less of an easing inclination than some market participants had anticipated. The decision was not unanimous - three policymakers dissented against the language that could be interpreted as pointing toward an easing bias. That dissension reflected growing concern among some members of the Fed's rate-setting body about persistent inflation and the economic effects of the conflict involving Iran.
In currency markets, the dollar index and dollar index futures remained near two-week highs in Asian trade as investors priced in the likelihood that more Fed officials were alert to upside inflation risks. Energy prices, which have risen following supply disruptions linked to the Iran conflict, were a particular factor cited by policymakers.
Oil and geopolitical backdrop
Brent crude climbed above $120 per barrel on Thursday, reaching the highest levels referenced in the market update since the 2022 Russia-Ukraine crisis. Market participants said the surge in oil reflected ongoing tensions and a stalemate between the U.S. and Iran, which has heightened concerns about further supply disruptions that could feed into inflation.
Currency moves across Asia
The Japanese yen moved decisively weaker, with the USD/JPY pair pushing beyond the 160 level - a threshold that in previous episodes has prompted market intervention. Earlier in the week the Bank of Japan struck a somewhat firmer tone, but traders remained unconvinced that a sustained path of near-term rate increases was imminent.
The Indian rupee was the day's most notable underperformer. USD/INR rose about 0.5%, taking the exchange rate to a record high of 95.322 rupees per dollar. The rupee gave back gains that had been achieved following Reserve Bank measures intended to support the currency, with surging oil prices cited as a primary headwind.
The Chinese yuan was effectively unchanged in FX trading after purchasing managers index releases showed steady manufacturing growth but a contraction in non-manufacturing activity in April. These mixed PMI readings left the USD/CNY pair little changed in Asian trade.
Elsewhere, the South Korean won saw some support as USD/KRW declined roughly 0.3% after retail sales for March printed stronger and industrial production growth slightly exceeded the prior month. The Singapore dollar was flat against the dollar, while the Taiwan dollar weakened, with USD/TWD rising about 0.2%.
Federal Reserve leadership note
Wednesday's meeting was the Fed's last under Chair Jerome Powell in his current role as chair, with Powell set to step down from that position in May while remaining on the Federal Reserve Board as a Governor.
Overall, currency markets entered the Asian trading session with a cautious tone as the twin dynamics of a more hawkish Federal Reserve and higher oil prices tied to the Iran conflict weighed on several Asian currencies.