Asian Currencies Edge Higher as Markets Look to Fed Rate Cut; Rupee Steadies Near Record Lows

Asian currencies strengthened slightly on Friday as traders grew more confident that the U.S. Federal Reserve will cut interest rates next week. The US Dollar Index slipped 0.1% in Asian hours, hovering near a one-month low, with Dollar Index Futures also down 0.1% as of 05:57 GMT, adding support to regional currencies.

In India, the rupee held close to its all-time low after the Reserve Bank of India reduced its key repo rate by 25 basis points to 5.25%. The central bank maintained a neutral stance, pointing to sharply lower inflation and steady domestic demand as justification for easing. Retail inflation has fallen to rare lows, giving policymakers room to stimulate borrowing and economic growth. Still, the move followed days of uncertainty, as some analysts expected the RBI to hold rates amid the rupee’s recent weakness and stronger-than-expected GDP data. The currency traded around 90 per dollar after touching a record low of 90.50 earlier in the week, weighed down by soft foreign inflows and a wider trade deficit. USD/INR was last up 0.1% at 89.875.

Across Asia, optimism surrounding a potential Fed rate cut boosted broader risk sentiment. The Japanese yen strengthened, with USD/JPY falling 0.3% as speculation increased that the Bank of Japan may raise rates in December. A Reuters report suggested the government was open to such a move, while comments from BOJ Governor Kazuo Ueda were seen as less dovish.

Weak U.S. jobless claims and easing inflation data have reinforced expectations of upcoming U.S. policy easing. Investors now await the latest U.S. PCE inflation report—considered the Fed's preferred gauge—for further direction. The South Korean won slipped 0.3%, the Singapore dollar edged 0.1% higher, and China’s yuan was little changed, with offshore USD/CNH down 0.1%. Australia’s AUD/USD pair rose 0.2%, supported by improved risk appetite.