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Asian currencies traded mixed on Friday while the U.S. dollar weakened slightly, as investors assessed growing optimism over a potential U.S.-Iran peace agreement and the latest signals on Federal Reserve interest rate policy.
The U.S. Dollar Index (DXY) fell 0.1% during Asian trading hours after dropping to a one-week low in the previous session. U.S. Dollar Index futures also edged down 0.1%, reflecting cautious market sentiment.
Investor confidence improved after U.S. President Donald Trump stated that a peace agreement with Iran could be reached as early as this weekend. The comments boosted risk appetite across global financial markets, although Iranian officials indicated that a final decision has not yet been made.
Expectations of easing geopolitical tensions pushed oil prices to their lowest level in nearly two months, raising hopes for more stable energy supplies and reduced pressure on global markets.
Among Asian currencies, the Indian rupee emerged as the strongest performer. The USD/INR pair fell 0.7%, supported by improving investor sentiment and a softer U.S. dollar. The Chinese yuan also strengthened, with USD/CNY declining 0.2%, while the Singapore dollar remained largely unchanged against the greenback.
The Australian dollar slipped 0.1% against the U.S. dollar after posting strong gains in the previous session. Meanwhile, the Japanese yen weakened slightly, with USD/JPY rising 0.2% to 160.25. The pair remains above the 160 level, a range that previously triggered currency intervention by Japanese authorities.
Market participants are also focused on next week's Bank of Japan meeting. Analysts widely expect the central bank to raise interest rates by 25 basis points to 1%, marking the highest Japanese interest rate level in decades.
Attention is also turning to U.S. inflation data and its impact on Federal Reserve policy. Recent producer price data showed stronger-than-expected growth in May, largely due to higher energy costs. However, core inflation remained relatively moderate, easing concerns about immediate monetary tightening.
According to CME FedWatch data, markets are currently pricing in roughly a 60% probability of a Federal Reserve rate hike by December, keeping traders closely focused on upcoming economic indicators and central bank guidance.
