Asia FX muted as dollar steadies amid rate cut bets; rupee slammed by Trump threat

Investing.com-- Most Asian currencies kept to a tight range on Tuesday, while the dollar steadied from recent losses amid growing speculation over whether the Federal Reserve will cut interest rates in the coming months.

The Indian rupee was the worst performer in the region, extending recent declines after U.S. President Donald Trump threatened the country with steep tariffs over its buying of Russian oil. Focus this week is also on a Reserve Bank of India (NSE:BOI) meeting. 

Most regional currencies logged strong gains in the past two sessions after weak U.S. payrolls data spurred increased bets on rate cuts and battered the dollar. But the greenback found some support on Monday, pressuring most Asian currencies. Concerns over Trump’s tariffs, which will take effect from this week, lent some strength to the greenback. 

The Japanese yen’s USDJPY pair steadied around 147.17 yen following some positive services purchasing managers index data for July.

The Chinese yuan’s USDCNY pair moved little after services PMI data for July read stronger than expected. 

The South Korean won’s USDKRW pair rose 0.1% following mixed consumer price index inflation data for July, while the Australian dollar’s AUDUSD pair was flat. 

The Singapore dollar’s USDSGD pair was also unchanged. 

Indian rupee hits record low on Trump tariff threat

The Indian rupee weakened sharply on Tuesday, with the USDINR pair surging to 88.102 rupees, its weakest level yet against the dollar. 

The currency was battered by Trump’s threat to impose steep tariffs against India over the country’s buying of Russian oil. Trump had last week imposed 25% tariffs on India, and threatened a bigger penalty. 

Trump repeated this threat on Monday, stating that he will be “substantially raising” tariffs on Indian goods. 

Higher tariffs herald increased pressure on the Indian economy, given its heavy exposure to the U.S. as a market for exports. In 2024, India had a trade surplus of about $44 billion with the United States.

Trump’s threat also comes just before a Reserve Bank of India meeting this week, where the central bank is widely expected to trim rates further in the face of increasing economic headwinds. 

Dollar steadies from recent losses, Sept rate cut in focus

The dollar index and dollar index futures rose marginally in Asian trade, after logging steep losses since Friday.

Traders were seen ratcheting up bets that the Fed will cut rates by at least 25 basis points in September, after nonfarm payrolls data for July read substantially weaker than expected.

A downward revision in payrolls data for the prior two months also signaled sustained cooling in the U.S. labor market– a scenario that gives the Fed more impetus to cut rates.

Markets are now pricing in a 91.4% chance the Fed will cut rates in September, CME Fedwatch showed, up from a 61.7% chance seen last week.