US Dollar Flat at 99.65, Yen Near 160

Market Overview

The U.S. dollar remained near multi‑month lows on Tuesday, with the US Dollar Index trading flat at 99.65 by 02:26 ET (06:26 GMT), hovering close to its lowest level since early June. Traders scaled back expectations of a near‑term Federal Reserve rate hike after a series of softer U.S. economic data points.

US Dollar and Fed Outlook

Retail sales fell in July for the first time in nine months, and unexpected job losses combined with mild inflation readings have reduced expectations for tighter Fed policy. Consequently, the CME FedWatch tool now prices only a 35% chance of a rate increase at the Fed’s September meeting.

Asian Currency Movements

Gains for Asian currencies were limited by a sharp rise in energy prices and higher U.S. bond yields. The Japanese yen stayed weak, with USD/JPY rising 0.2% to around 160 yen, having given most of the recent gains after a joint U.S.–Japan intervention at the end of July. The Australian dollar’s AUD/USD pair traded largely flat. The Indian rupee faced renewed pressure, edging up 0.1% to 95.67 per dollar – its highest level since July 30 – as rising crude prices, higher U.S. yields, and a Reserve Bank of India decision to bring forward the deadline for its foreign‑currency deposit swap facility added headwinds. Reuters reported that the RBI was likely intervening in the foreign‑exchange market for an eighth consecutive session to cushion the rupee from elevated oil prices.

Commodity and Geopolitical Developments

Brent crude rose above $91 a barrel on Tuesday after the U.S.–Iran cease‑fire expired and Tehran announced it would adopt a “fully offensive” military posture. President Donald Trump threatened military action against Oman if it interfered with U.S. efforts to reach a deal with Iran, heightening uncertainty around the Strait of Hormuz, a crucial oil‑shipping route. These renewed tensions have kept inflation risks elevated for energy‑importing Asian economies.

Monetary Policy and Yield Environment

Higher U.S. yields remain a headwind for emerging Asian currencies. The U.S. 10‑year Treasury yield has risen above 4.7%, while the 30‑year yield moved above 5.3%, the highest levels since 2007. Markets will now focus on the Federal Reserve’s minutes due on Wednesday for further clues on the rate outlook.