Currency Market Overview
The U.S. dollar index slipped marginally to 101.02, pushing the USD/EUR pair toward a one‑week low as investors awaited the European Central Bank’s policy decision later in the day. The ECB is widely expected to keep interest rates unchanged, but markets will look for guidance on whether policymakers remain open to another rate hike later in the year, especially as higher oil prices threaten to revive inflation pressures.
Oil and Geopolitical Backdrop
Brent crude remained above $95 a barrel after fresh U.S. strikes on Iran and attacks by Yemen’s Iran‑backed Houthis on oil tankers, reinforcing the dollar’s safe‑haven appeal.
Japanese Yen and BOJ Stance
The USD/JPY pair traded at 163.1, keeping the yen near its weakest level since December 1986 (it touched 163.23 earlier in the week). Reports indicated that Bank of Japan policymakers are becoming more open to raising interest rates at a faster pace than markets previously anticipated, although the central bank is still expected to leave rates unchanged at its July 31 meeting. Market expectations for an additional rate hike later in the year have modestly increased. Japan’s finance ministry reiterated that authorities stand ready to intervene against excessive currency moves if needed.
South Korean Won and Economic Data
The USD/KRW pair fell 0.5% to 1,469.41 won, the highest level since May 11. South Korea’s economy expanded 0.6% in the second quarter, comfortably ahead of the 0.4% growth forecast. Although growth slowed from the first quarter’s exceptionally strong pace, the stronger‑than‑expected reading reinforced expectations that the Bank of Korea could deliver another interest‑rate hike at its August meeting, following a July increase. ANZ highlighted resilient semiconductor exports and the country’s role in the global AI investment boom as growth supports, while higher oil prices raise the risk of broader inflation pressures. The won also benefited from Seoul’s plans to internationalise the currency through expanded offshore trading, broader foreign‑investor access, and easier foreign‑exchange regulations, which analysts say should boost demand for won‑denominated assets over the longer term.
Indonesian Rupiah and Bank Indonesia Policy
Indonesia’s rupiah was little changed, with the USD/IDR pair around 17,921.5 rupiah, well above the record lows seen in June. Bank Indonesia unexpectedly kept its benchmark seven‑day reverse repo rate unchanged at 5.75% on Wednesday, despite many economists expecting another hike after two consecutive increases. Governor Perry Warjiyo announced additional measures to attract foreign capital, including lowering the cost of foreign‑exchange hedging transactions and encouraging greater use of regional currencies in cross‑border trade.
Indian Rupee Outlook
The USD/INR pair edged higher to 96.66. Citi expects the rupee to receive medium‑term support from the Reserve Bank of India’s foreign‑currency deposit swap programme, noting that stronger‑than‑expected inflows should gradually lift India’s foreign‑exchange reserves, improve domestic banking liquidity, and help steer the rupee toward a fairer valuation over time.
Australian Labour Market and RBA Expectations
In Australia, the unemployment rate held steady at 4.4%, as a rise in labour‑force participation offset stronger hiring. The robust labour market reinforced expectations that the Reserve Bank of Australia could resume tightening, with investors now awaiting next week’s second‑quarter inflation data for further policy clues. The USD/AUD rose 0.2% to A$0.7010.