The US Dollar Index (DXY) edged up by 0.1% to near 99.50 in early European trading on Tuesday, supported by a rally in long-dated US Treasury yields, which saw the 10-year yield hit a 19-month high at 4.78% and the 30-year yield rise 0.5% to 5.27%—the highest in over a week. This move was attributed to surging oil prices, up nearly 0.6% to $86.00, amid renewed Middle East conflicts, including an incident where Iran’s Islamic Revolutionary Guard Corps shot down a US MQ-9 drone over the Strait of Hormuz following US strikes on Iranian rocket launchers. Investors are also awaiting key US economic data releases, including the ISM Manufacturing PMI and JOLTS Job Openings, with the Nonfarm Payrolls report for August seen as the major trigger for the Dollar later in the week [1].
The Indian Rupee (INR) strengthened sharply against the US Dollar, with the USD/INR pair dropping to 94.88, its lowest in two months. This move was driven by likely Reserve Bank of India (RBI) intervention, stronger-than-expected Q2 GDP growth of 7.8% year-on-year (above the 7.1% estimate), and a narrowed fiscal deficit of Rs. 4.55 trillion ($47.81 billion), or 26.8% of the annual target. However, the sustainability of the INR’s gains is questioned due to record-high RBI net short forward positions of $137 billion in July, suggesting the central bank may need to buy US Dollars in the future. Technical indicators show a bearish reversal for USD/INR, with the Relative Strength Index falling below 40 for the first time in almost a year [2].
In the UK, the GBP/USD pair declined below 1.3550, trading around 1.3545, as hawkish remarks from Fed Chair Kevin Warsh at the Jackson Hole symposium bolstered the US Dollar. Warsh emphasized the need for the Fed to ensure inflation is moving toward its 2% target, leading to a rise in September Fed rate hike expectations to 65.4% from below 40%. The FXS Fed Sentiment Index remained elevated at 129.70, indicating persistent market expectations for Fed vigilance on inflation. Meanwhile, market pricing for Bank of England tightening has also increased, with a ~60% chance of a 25 basis point hike at the next meeting and 36 basis points of tightening expected by year-end. The October 28 UK budget is highlighted as a key upcoming event for markets [3].
The Indonesian Rupiah (IDR) weakened against the US Dollar, with USD/IDR trading around 17,770, as the Dollar rebounded on hawkish Fed sentiment. The probability of a September Fed rate hike rose to over 66% from 41% a week earlier. OCBC Group Research noted that the Fed’s hawkish tone and resilient US data should keep policy restrictive and support the Dollar into early 2027. Indonesia’s annual inflation accelerated to 3.19% in August, above expectations but within the central bank’s target range, while core inflation reached 2.92%. Manufacturing activity in China, Indonesia’s top trading partner, also showed strength, with the PMI rising to 51.5 in August [4].
CONCLUSION
The US Dollar is gaining strength across global markets, buoyed by rising Treasury yields and hawkish signals from the Federal Reserve, which have increased expectations for a September rate hike. This has pressured emerging market currencies such as the Indian Rupee and Indonesian Rupiah, despite positive domestic economic data. Market participants are closely watching upcoming US economic releases and central bank meetings for further direction.