Asian currencies edged higher on Tuesday while the U.S. dollar retreated, as investors grew confident the Federal Reserve will cut interest rates this week. Markets largely expect a 25 basis point reduction, with a nearly 100% probability priced in, though attention remains on the Fed’s outlook for future moves as inflation stays sticky.
Geopolitical risks from the Russia-Ukraine conflict tempered risk appetite, while gold prices surged to fresh record highs. The U.S. Senate also confirmed Stephen Miran to the Fed board, while an appeals court ruled that President Trump cannot dismiss Fed Governor Lisa Cook, ensuring her participation in this week’s policy meeting.
In Asia, the Japanese yen held steady, with USD/JPY slipping 0.1% after a long weekend. The Bank of Japan meets Friday and is expected to keep rates near 0.5% amid political uncertainty following Prime Minister Shigeru Ishiba’s resignation. However, persistent inflation may pressure the BOJ toward a rate hike as early as October. Key August inflation data is due before the decision.
The Chinese yuan was little changed despite Beijing’s pledge to boost domestic consumption through “15-minute convenience living circles” and other stimulus measures. The yuan hovered near its strongest level since November 2024, supported by ongoing trade talks with Washington, even as disputes over semiconductor restrictions persist.
Elsewhere, the South Korean won gained 0.3%, the Singapore dollar edged up 0.1%, and the Australian dollar traded near 10-month highs. The Indian rupee stabilized above 88 per dollar after retreating from record lows earlier this month.
The dollar index slipped 0.1–0.2% in Asian trade, extending overnight losses as traders brace for the Fed’s decision and guidance from Chair Jerome Powell on the path of monetary easing.