Asian currencies traded within narrow ranges, while the US dollar stabilized after the Federal Reserve kept interest rates unchanged. Federal Reserve Chairman Kevin Warsh emphasized that inflation still needs to return to the target level, reinforcing expectations that interest rates could remain elevated for a longer period.
At the same time, geopolitical tensions in the Middle East remained a major focus for financial markets after the United States launched new strikes against Iranian targets in response to what it described as an attempted attack on its forces. The developments prompted investors to reassess risk sentiment and the possibility of further disruptions to global energy supplies.
The US Dollar Index rose to around 100.9 points, recovering from the previous session’s losses, supported by Warsh’s remarks, although the Federal Reserve stopped short of signaling another rate increase.
The Singapore dollar remained steady against the US dollar after Singapore announced a S$900 million support package to help households and businesses cope with rising costs linked to renewed tensions in the Middle East.
The package followed an earlier decision by the Monetary Authority of Singapore to slightly tighten the appreciation path of the Singapore dollar nominal effective exchange rate policy.
DBS analysts said Singapore’s strong fiscal position continues to distinguish it from many global and regional economies amid ongoing geopolitical and economic uncertainty, helping maintain investor confidence and attract additional capital inflows.
The Australian dollar slipped about 0.2% against the US dollar, while the New Zealand dollar posted a modest gain as market reactions remained limited following the Federal Reserve’s decision.
Meanwhile, the Japanese yen hovered near its weakest levels in decades, with the USD/JPY pair trading around 163.5 ahead of the Bank of Japan’s upcoming policy meeting. The South Korean won weakened slightly, while the Chinese yuan traded within a narrow range, with the onshore USD/CNY pair edging lower and the offshore pair remaining stable.
The Indian rupee, Malaysian ringgit, Thai baht, and Philippine peso also traded largely unchanged against the US dollar.
Despite the decision to leave interest rates unchanged, market expectations for a September rate hike declined. CME FedWatch data showed the probability of a rate increase falling to around 64% from approximately 81% before the Federal Reserve’s announcement.
Philip Wee, Senior FX Strategist at DBS Bank, said the Federal Reserve’s decision was less hawkish than many investors had anticipated after weeks of speculation about a surprise rate hike.
He added that the continued emphasis by the Federal Reserve Chairman on inflation risks is likely to support the US dollar over the medium term, even though the meeting did not provide a clear signal of a September rate increase.
Markets are now turning their attention to the Bank of England meeting, where policymakers are widely expected to leave interest rates unchanged, while investors will closely watch for any surprises that could support the British pound.
Investors are also awaiting the Bank of Japan meeting for clearer signals regarding the path of monetary policy tightening amid the yen’s continued weakness and renewed expectations of further policy normalization.
Attention will also focus on several key Asian economic releases, including China’s official Manufacturing PMI, which is expected to remain at 49.9, signaling continued weakness in the manufacturing sector, along with second quarter GDP data from Taiwan and Hong Kong.
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