Asian Currencies Steady as Dollar Eyes Fourth Weekly Gain

Asian currencies traded largely flat on Friday as the U.S. dollar headed for its fourth consecutive weekly gain, supported by expectations that the Federal Reserve could raise interest rates again before the end of 2026.

The dollar eased slightly alongside U.S. Treasury yields, providing limited relief to regional currencies. However, persistent inflation concerns and expectations of further Fed tightening kept investors cautious ahead of key U.S. consumer sentiment and inflation expectations data.

The Japanese yen weakened modestly, with the USD/JPY pair rising 0.1% after disappointing household spending figures raised concerns about Japan's economic recovery.

Government data showed Japanese household spending declined 3.1% year-on-year in August, marking its ninth consecutive monthly contraction. Although the decline was smaller than the expected 3.5%, monthly spending increased just 0.1%, missing forecasts of 0.5%.

Weak consumer demand, combined with moderate wage growth, could complicate the Bank of Japan's plans for additional interest rate hikes after tightening monetary policy by 50 basis points.

Elsewhere, the Chinese yuan strengthened slightly, with USD/CNY falling 0.07%, while USD/SGD declined 0.09%. The Australian dollar gained 0.2%, and the South Korean won remained largely unchanged amid holiday-thinned trading.

Meanwhile, the Indian rupee remained under significant pressure as USD/INR climbed 0.2%, approaching the psychologically important 97 level.

Elevated crude oil prices continued weighing on India's currency despite the Reserve Bank of India's recent 25-basis-point interest rate increase and shift toward a calibrated tightening stance.

Reports of RBI intervention helped support the rupee, although persistent foreign capital outflows and elevated U.S. Treasury yields continued creating challenges.

The U.S. dollar index and dollar futures slipped approximately 0.1% on Friday but remained on track for a weekly increase of around 0.1%.

The greenback stayed near an 18-month high after minutes from the Federal Reserve's September meeting reinforced expectations of continued restrictive monetary policy.

According to CME FedWatch, investors reduced expectations for an October rate increase but continued anticipating another 25-basis-point hike in December.

Markets now await the University of Michigan's consumer sentiment and inflation expectations figures for further insight into the Fed's interest rate outlook and potential movements across Asian foreign exchange markets.