Asian Currencies Subdued as Dollar Steadies on Fed's Hawkish Hold; BOE, BOJ Awaited

Most Asian currencies traded within tight ranges on Thursday as the U.S. dollar found support after the Federal Reserve held interest rates steady but maintained a hawkish commitment to combating inflation. Investor attention is now turning to upcoming monetary policy decisions from the Bank of England and the Bank of Japan.

Fed's Stance Supports Dollar

The U.S. Federal Reserve concluded its policy meeting by leaving the federal funds rate unchanged, as widely expected. However, comments from the central bank reiterating its primary goal of returning inflation to target reinforced market expectations for a "higher-for-longer" interest rate environment.

This stance provided a floor for the greenback, with the U.S. Dollar Index recovering from earlier losses to trade around 100.9. According to the CME FedWatch Tool, the probability of a rate hike in September has moderated to approximately 64%, down from about 81% before the announcement. Analysts at DBS noted that while the decision proved less hawkish than some investors had feared, the continued emphasis on inflation should support the dollar in the medium term.

Regional Currency Movements

The dollar's stability led to subdued activity across most Asian currency pairs. Geopolitical concerns also weighed on sentiment after the U.S. launched fresh strikes on Iranian targets, prompting a reassessment of regional risk appetite.

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Key currency movements included:

• The Japanese yen (USD/JPY) hovered near multi-decade lows at approximately 163.5.
• The Australian dollar (AUD/USD) weakened by about 0.2%.
• The Singapore dollar (USD/SGD) was little changed, finding some support from a new SGD900 million government support package.
• The Chinese yuan, South Korean won, and Indian rupee all traded in narrow ranges.

Central Banks and Data in Focus

Market participants are now looking ahead to other major central bank meetings. The Bank of England is widely expected to hold interest rates steady later on Thursday, while the Bank of Japan's meeting on Friday will be closely watched for any new guidance on policy normalization amid the yen's prolonged weakness.

Investors will also monitor a slate of regional economic data on Friday, including China's official manufacturing PMI, which is expected to signal ongoing weakness in factory activity.