Asia FX muted amid Israel-Iran concerns; dollar weakens with Fed on tap

Investing.com-- Most Asian currencies moved little on Wednesday as markets remained largely risk-averse as the Israel-Iran war raged on, while the dollar edged lower before the conclusion of a Federal Reserve meeting. 

Regional markets were also grappling with uncertainty over U.S. trade policy, as an early-July deadline for President Donald Trump’s trade tariffs drew closer. Japanese trade data released on Wednesday underscored the impact of tariffs on the country’s economy. 

The dollar was dented by a swathe of weak U.S. economic readings, which pushed up bets for a more dovish tilt from the Fed later in the day. This notion offered some relief to Asian currencies, although most units remained rangebound.

The South Korean won was an outlier, with the USDKRW pair falling 0.6% and remaining in sight of a recent eight-month low. The Taiwan dollar was also an outperformer, with the USDTWD pair falling 0.4%. 

The Chinese yuan’s USDCNY pair was flat, with focus on the People’s Bank of China, which is set to decide on its benchmark loan prime rate later this week. 

The Australian dollar’s AUDUSD pair rose 0.2%, while the Singapore dollar’s USDSGD pair was flat.

The Indian rupee’s USDINR pair also tread water. 

Japanese yen steady amid tariff talks, mixed trade data

The Japanese yen’s USDJPY pair fell 0.1% after Prime Minister Shigeru Ishiba said the country had not reached a trade deal with the United States during the Group of Seven summit.

Ishiba said that disagreements still remained between the two, and that U.S. tariffs had battered Japan’s automobile industry.

Ishiba’s comments came shortly after data showed Japan clocked a smaller-than-expected trade deficit in May. Japan’s exports shrank for the first time in eight months, albeit at a slower than expected pace. 

Still, the trade data highlighted the impact of U.S. tariffs on Japanese trade, with analysts now expecting a protracted decline in Japanese exports over the coming months. 

A sharper-than-expected decline in Japanese imports also raised concerns over slowing domestic demand. 

The yen had shown little reaction to the Bank of Japan keeping interest rates unchanged on Tuesday. The BOJ also flagged plans to slow its pace of bond tapering from 2026, a dovish signal on monetary policy. 

Dollar edges lower with Fed on tap; dovish comments expected 

The dollar index and dollar index futures both fell about 0.1% in Asian trade, as markets awaited the conclusion of a Fed meeting later in the day.

The central bank is widely expected to leave interest rates unchanged at 0.5%.

But traders were seen ramping up bets on more dovish signals from the Fed, especially after softer-than-expected retail sales and industrial production data on Tuesday pushed up concerns over a cooling U.S. economy. 

Focus will now be chiefly on how many interest rate cuts Fed Chair Jerome Powell projects this year. Powell had flagged a much slower pace of rate cuts in 2025 after cutting rates by a cumulative 1% through 2024.