Most Asian currencies edged higher on Thursday, clawing back part of the sharp declines seen overnight when firmer U.S. inflation readings and mixed signals from the Federal Reserve propelled the U.S. dollar. Markets were further unsettled by a sharp rise in oil prices linked to rapidly worsening hostilities between the U.S.-Israel coalition and Iran.
The Japanese yen held steady near the weakest levels observed since mid-2024 after the Bank of Japan maintained its policy rate at the expected 0.75 percent. The BOJ’s unanimous inaction, with one of nine board members calling for a 25 basis point increase, left the yen close to recent lows while underscoring the central bank’s cautious stance.
The BOJ specifically noted a concern about rising oil prices driven by the Iran war, even as it projected that overall Japanese inflation should ease in the near term. At the same time, the central bank signaled expectations that inflation will begin to trend higher again later in 2026, a development the BOJ said could prompt further rate increases in the months ahead.
Beyond Japan, several other major central banks including the Bank of England, the European Central Bank and the Swiss National Bank were scheduled to meet later in the day. Those events added to the sense of caution among currency traders.
Dollar and Fed dynamics
The dollar index and its futures eased on Thursday, slipping about 0.3 percent and 0.1 percent respectively after a strong advance on Wednesday. The greenback had surged earlier after U.S. producer price index inflation for February came in hotter than expected, raising worries that underlying inflation may be picking up again.
After that data, the Federal Reserve kept interest rates unchanged but warned that higher energy costs were likely to contribute to upward pressure on inflation, a comment that could reduce the likelihood of quicker rate cuts. Fed Chair Jerome Powell also drew attention to increased uncertainty stemming from the Iran conflict, reinforcing market concerns that rising oil prices could sustain global inflationary pressures and keep policy rates elevated.
Regional currency moves
- The USD/JPY pair ticked down about 0.1 percent on Thursday after a sharp rise overnight but remained close to its highest levels since mid-2024.
- The USD/CNY pair advanced roughly 0.3 percent on the day.
- The USD/SGD pair fell about 0.2 percent.
- The AUD/USD stood out as an outperformer, climbing nearly 0.4 percent following much stronger-than-expected Australian employment data for February, even as the unemployment rate rose unexpectedly.
- The USD/KRW pair dropped about 0.7 percent, while the USD/INR pair stabilized around 92.9 rupees after briefly trading above 93 rupees overnight.
Across the region, the mix of central bank activity ahead and the persistently elevated oil price backdrop meant that markets remained sensitive to incoming data and geopolitical headlines. Traders are watching how inflation dynamics and central bank messaging interact with energy price moves linked to the Iran war, and how those forces might influence the trajectory of interest rates.
Note: Some market participants were also parsing the broader calendar of central bank meetings and economic releases later in the day, which could shape near-term FX volatility and risk sentiment in Asian markets.