Asian Currencies Slip as Dollar Steadies Amid Fed Rate Cut Bets and Trade Tensions

Asian currencies weakened on Wednesday as the U.S. dollar stabilized near three-year lows, driven by market attention on the Federal Reserve’s potential rate cuts and U.S. trade policy deadlines.

The dollar’s gains were limited by rising expectations that the Fed may cut interest rates by September. Treasury Secretary Scott Bessent and Goldman Sachs both anticipate a rate reduction, while the CME FedWatch tool shows a 73.2% probability of a 25 basis point cut. However, Fed Chair Jerome Powell remains cautious, citing inflationary uncertainty from President Trump’s trade tariffs.

The Japanese yen hovered near a one-month low against the dollar, as uncertainty clouded trade talks between Tokyo and Washington. President Trump cast doubt on a Japan deal, warning of potential 30–35% tariffs and threatening formal notice. Meanwhile, he signaled progress on a trade agreement with India that could prevent the country from facing a 26% tariff hike.

The South Korean won fell, with the USDKRW pair up 0.4%, following a slight increase in June inflation—giving the Bank of Korea room to maintain rate cuts. The Chinese yuan and Singapore dollar remained steady, while Australia’s dollar slipped after weaker-than-expected retail sales.

Investor focus also remained on Trump’s sweeping tax and spending cut bill, narrowly approved by the Senate and now awaiting a House vote. Analysts estimate the bill could add $3.3 trillion to the U.S. deficit over the next decade, further complicating the dollar’s outlook.

With a July 9 deadline looming for new tariffs, markets are tense. So far, the U.S. has finalized trade deals with the UK and a limited framework with China. Higher tariffs could disrupt global markets and economic stability across Asia.