US Fed raises rates 25bp; Asian currencies tumble as dollar strengthens

The US Federal Reserve raised its benchmark interest rate by 25 basis points to 3.75%–4.00% on September 16, 2026, marking the first increase since July 2023. The decision, announced after a two-day Federal Open Market Committee meeting, was unanimous among all 12 voting members. Fed Chair Kevin Warsh cited elevated inflation at 3.4% annually—above the Fed's 2% target—and signalled the possibility of at least one further rate increase before year-end.

The rate increase triggered a sharp rally in the US dollar, with the dollar index (DXY) climbing 0.64% to reach 100.315, reinforcing the greenback's appeal to investors seeking higher returns on dollar-denominated assets. The broader US dollar strength compressed gains for developing-market currencies across Asia.

Rupiah weakened 0.82% over the week, closing Friday (September 18) at Rp17.730 per dollar after declining to Rp17.753 on Thursday—a seven-session losing streak. The decline reflected broad emerging-market currency pressure: South Korea's won fell 3.19% and Japan's yen dropped 2.11% despite the Bank of Japan raising its policy rate to 1.25%, the highest since 1995. Market participants deemed the BoJ decision insufficiently hawkish relative to the Fed's tightening, and the widening interest rate differential continued to support yen carry-trade strategies. By contrast, China's yuan strengthened to CNY6.69 per dollar, its strongest level since July 2022, buoyed by solid export growth and stable macroeconomic conditions; yuan appreciated approximately 4.2% year-to-date against the dollar.

Economists attributed the rupiah decline to portfolio reallocation triggered by the Fed's rate decision and the resultant dollar strength. Warsh balanced messaging on inflation vigilance with a constructive outlook on US economic growth, and rebuffed questions about political pressure from President Donald Trump—emphasizing central bank independence—while acknowledging the Fed remains committed to fighting inflation that has persisted above target for too long.