Most Asian currencies declined Friday as rising oil prices triggered by the U.S.-Israel war on Iran rattled financial markets, while the U.S. dollar also edged lower despite briefly touching multi-month highs earlier in the week.
Hawkish signals from major central banks worldwide added pressure to market sentiment. Policymakers from the Bank of Japan, European Central Bank, Swiss National Bank, and the Bank of England warned that oil-driven inflation could keep interest rates elevated for longer. The U.S. Federal Reserve, meanwhile, held rates steady and acknowledged growing uncertainty over energy-fueled inflation but stopped short of signaling further rate hikes — a notably less aggressive stance compared to its global counterparts.
The dollar index was down roughly 0.8% for the week, marking its first weekly loss in three, even as it edged up slightly during Asian trading hours Friday. Thin regional volumes were partly attributed to a public holiday in Japan, though the Japanese yen held onto most of its Thursday gains following the BOJ’s hawkish commentary. The yen, euro, Swiss franc, and British pound were all on track to close the week higher against the dollar. The Australian dollar also strengthened after the Reserve Bank of Australia raised interest rates and signaled potential further tightening if oil prices continue fueling inflation.
Asian economies bore the brunt of energy market anxiety. Nations like India, South Korea, and Japan — heavily dependent on imported energy — saw their currencies weaken significantly. The Indian rupee hit successive record lows, with the USD/INR pair hovering near 93, while the South Korean won fell to levels not seen since 2009. Iran’s near-closure of the Strait of Hormuz, a critical oil and gas shipping route for Asia, intensified fears of prolonged energy supply disruptions across the region.
The Chinese yuan remained relatively stable, trading flat for the week after the People’s Bank of China left its benchmark loan prime rate unchanged. China’s vast petroleum reserves and limited reliance on natural gas for energy generation positioned it more favorably than regional peers against the threat of supply shocks.
