Asian Currencies Mixed as Dollar Holds Gains on Hawkish Fed Signal

Most Asian currencies showed a mixed performance on Thursday as the U.S. dollar maintained its strength near a seven-week high. The dollar's position was bolstered by the Federal Reserve's first interest rate increase in three years and signals that further monetary tightening is likely.

Dollar Strengthens on Hawkish Fed Stance

The U.S. Federal Reserve voted unanimously to raise its benchmark policy rate by 25 basis points to a range of 3.75%-4.00%. According to an Investing.com report, this was the first U.S. rate hike in three years. The central bank's latest projections also indicated that officials anticipate one more rate increase before the end of 2026.

Following the announcement, the U.S. dollar index, which measures the greenback against a basket of major currencies, climbed 0.7% overnight to trade around 100.30. Market expectations, reflected in rate futures, now imply a roughly 90% probability of another 25-basis-point hike by the end of the year, likely at the Fed's December meeting.

Yen Steadies Ahead of Bank of Japan Decision

The Japanese yen held near a two-week low against the dollar, with the USD/JPY pair trading around 156.08. Investor focus is now squarely on the Bank of Japan's (BOJ) policy decision, which is expected on Friday. Markets anticipate the BOJ will raise its own policy rate to a 31-year high in response to persistent inflationary pressures.

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Traders will be closely watching for guidance from BOJ Governor Kazuo Ueda on the potential timing and pace of any future rate hikes. Meanwhile, the British pound was also in focus ahead of a Bank of England policy announcement, with the GBP/USD pair trading near a six-week low.

Regional Currencies Diverge

Across the region, currency movements were varied. The Chinese yuan remained resilient, with both the onshore (USD/CNY) and offshore (USD/CNH) pairs trading flat. China has reportedly expanded its onshore central clearing system for foreign currencies, a move aimed at encouraging direct trading with the yuan and reducing reliance on the U.S. dollar.

Other notable movements included:

• The South Korean won weakened, with the USD/KRW pair rising 0.2% to 1,379.63.
• The Indonesian rupiah fell, as USD/IDR gained 0.6% to 17,755.1.
• The Malaysian ringgit lost ground, with USD/MYR up 0.4% to 4.0977.
• The Indian rupee strengthened, pushing the USD/INR pair down 0.2% to 95.921.