Asian Currencies Trade in Narrow Ranges as Middle East Tensions Offset Softer U.S. Dollar

Asian currencies traded within narrow ranges on Friday as escalating tensions in the Middle East tempered risk appetite, offsetting support from a softer U.S. dollar.

The U.S. Dollar Index edged 0.1% higher to 100.79, stabilizing after touching a one-month low earlier this week following softer U.S. inflation data.

Southeast Asian currencies

1. USD/MYR rose about 0.3% after Malaysia's June inflation slowed to 1.9%, supporting market expectations that Bank Negara Malaysia may maintain its current policy stance.
2. USD/SGD was little changed following a narrower Singapore trade surplus and slower growth in non-oil domestic exports.
3. USD/IDR fell 0.14%. DBS expects Bank Indonesia to raise interest rates by 25 basis points, highlighting differing monetary policy expectations between Indonesia and Malaysia.

Regional currency developments

The Japanese yen remained near a four-decade low amid the wide interest-rate differential between the United States and Japan, as well as expectations for additional fiscal spending under Prime Minister Sanae Takaichi.

Finance Minister Satsuki Katayama reiterated that authorities remain prepared to respond to excessive currency volatility. Japan spent a record ¥11.73 trillion supporting the yen between late April and May.

The Chinese yuan (USD/CNY and USD/CNH) edged lower against the U.S. dollar but remained on course for a third consecutive weekly gain. Market attention has shifted toward next week's People's Bank of China Loan Prime Rate decision, which DBS expects to remain unchanged.

Federal Reserve outlook

Recent comments from Dallas Fed President Lorie Logan, Governor Christopher Waller, New York Fed President John Williams, and Federal Reserve Chair Kevin Warsh have reinforced expectations that U.S. interest rates could remain elevated for longer.

Market focus

Market participants are expected to continue monitoring monetary policy developments across Southeast Asia, together with any official comments regarding Japan's currency policy, as both could influence regional foreign exchange markets.

Sources: Bank Negara Malaysia, Monetary Authority of Singapore, DBS, People's Bank of China, Federal Reserve officials' public remarks.