On Tuesday, multiple major currencies weakened against the US Dollar as surging oil prices and heightened expectations for further Federal Reserve rate hikes drove market volatility. The Indian Rupee (INR) slid to a two-month low, with the USD/INR pair trading near 96.13, as fears of persistent energy supply disruption and US President Donald Trump's rejection of sanctions relief for Iran diminished hopes for near-term diplomacy. Oil prices rose sharply, with the MCX Crude Oil contract up 2% to Rs. 9,020, exacerbating pressure on oil-importing economies like India. The Reserve Bank of India (RBI) is expected to intensify intervention to prevent the INR from breaching the 96-per-dollar mark, leveraging increased foreign exchange reserves from FCNR deposits. Market participants are closely watching the US JOLTS Job Openings data, expected to show 7.23 million new jobs, which could further influence Fed rate expectations. The CME FedWatch tool indicates a nearly 70% probability of a Fed rate hike in October, fueling concerns for the INR [1].
The Indonesian Rupiah (IDR) held ground despite similar pressures, with USD/IDR trading around 18,050. Bank Indonesia (BI) has shifted its intervention strategy, reducing direct spot market activity to 30% and focusing on non-deliverable forward (NDF) markets. The central bank aims to ensure the Rupiah reflects economic fundamentals, and recent currency movements remain aligned with regional peers. The US Dollar's momentum, driven by elevated oil prices and uncertainty over US-Iran negotiations, threatens further appreciation against the IDR. US Treasury yields surged above 5% for both 10- and 30-year bonds, reflecting escalating inflation concerns and the prospect of additional Fed rate hikes. Rabobank analysts confirmed the Fed's September 16 quarter-point hike was anticipated, and the CME FedWatch Tool shows a 70% probability of another hike in October [2].
The Euro (EUR) also weakened, with EUR/USD trading near 1.1360, its lowest since July 28. The decline was attributed to surging US Treasury yields and hawkish signals from Fed officials, including Cleveland Fed President Beth Hammack and Fed Governor Michael Barr, who emphasized the need for further policy tightening to curb high inflation. Societe Generale analysts noted that persistent Dollar strength has forced down EUR/USD projections, with consensus forecasts now at 1.16 and their own at 1.15. The bank highlighted that elevated oil and commodity prices, robust US economic data, and a risk-averse global environment have reinforced bearish views on the Euro. Looking forward, analysts warn that higher inflation and resilient US data could push the Dollar Index to a near-2026 high or EUR/USD to a new low. Fed’s Cook flagged AI and geopolitical risks as inflation drivers, maintaining a hawkish tone and keeping Dollar bulls alert [3].
Across all sources, the dominant theme is the strengthening US Dollar amid rising oil prices, persistent inflation concerns, and expectations for further Fed rate hikes. Central banks in India and Indonesia are actively intervening to stabilize their currencies, while analysts and market participants anticipate continued volatility as macroeconomic risks persist.
CONCLUSION
Global currency markets are under pressure as surging oil prices and heightened Fed rate hike expectations drive US Dollar strength. Central banks in India and Indonesia are intervening to support their currencies, while the Euro continues to weaken. The market takeaway is a high-impact environment with persistent volatility and risk aversion, as inflation and geopolitical tensions remain unresolved.