Asian currencies declined between 0.3% and 0.7%. A hawkish turn by the U.S. Federal Reserve last week has prompted traders to add to wagers on a rate hike later this year, keeping the dollar index clinging to its highest levels – near the 101 handle – since May 2025.
Futures implied tightening of around 38 basis points by the year-end. Yields on 2-year notes rose as much as 4 basis points to the highest since early 2025 at 4.23%.
“Markets may try to use the next data or Fedspeak catalyst to price in 50bp of Fed tightening in 2026, but unless there is a fresh Middle East escalation, lower oil prices should contain USD gains,” analysts at ING said in a note.
Brent crude oil prices declined nearly 2% after U.S. and Iranian officials made “encouraging progress” at a first round of talks in Switzerland.
While the rupee’s persistent bearish bias has eased in light of the retreat in oil prices and policy measures to draw dollar inflows, traders reckoned that the prospect of higher borrowing costs in the U.S. could dampen the improved sentiment.
Dollar-rupee far forward premiums, which reflect the cost of hedging against rupee depreciation, rose on Monday with the 1-year forward implied yield up 10 bps at 2.95%.Bankers also expect that hedging of interest obligations on foreign currency deposits, raised under aforementioned measures to draw dollar flows, would likely steepen the forward curve.
m.economictimes.com