Indonesian Rupiah holds gains as manufacturing PMI expands in July

USD/IDR remains subdued for the fourth successive day, trading around 18,040 during the Asian hours on Monday. The pair experiences notable downside pressure as the Indonesian Rupiah (IDR) strengthens in response to encouraging domestic economic indicators.

Indonesia’s manufacturing sector returned to expansion territory in July, with the S&P Global Manufacturing PMI rebounding to 50.2 from June’s 46.9, its highest level since February. This growth was driven by a marginal uptick in factory output following four months of contraction, alongside a stabilization in new orders after June's sharp decline.

Indonesia’s inflation cooled significantly in July. Headline annual inflation eased to 2.88% from 3.34% in the previous month, undershooting market expectations of 3.2% and reaching its lowest level since April. This slowdown keeps inflation comfortably within Bank Indonesia’s target band of 1.5% to 3.5%. Core inflation held steady at 2.76%, while monthly consumer prices fell 0.14%, defying forecasts of a 0.1% increase and marking the first monthly deflationary reading since January.

Compounding the USD/IDR pair's decline was widespread weakness in the US Dollar (USD), which faltered against major global currencies following news of official foreign exchange operations. Japanese authorities confirmed they executed joint, coordinated yen-buying interventions alongside the United States, with Bank of Japan data indicating expenditures of up to $58.97 billion. Tokyo emphasized that active communication with US policymakers remains ongoing and signaled a readiness to intervene further if necessary.

Finally, the Greenback faced broader selling pressure as global risk sentiment improved on potential diplomatic developments in the Middle East. Market anxiety eased after reports indicated US President Donald Trump paused planned military strikes against Iran. In a social media post on Truth Social, President Trump noted that regional nations requested time to finalize a deal, which aims to address Iran's nuclear program and facilitate the full reopening of the Strait of Hormuz.

Barkin flags a close call on rates, keeping Dollar bulls cautious

Barkin’s latest remarks score 6.2/10 on the FXS Speechtracker, modestly above the 5.4/10 historical average and signaling a slightly firmer tone relative to the established baseline. Calling it a “close call” on whether rates are high enough, expressing uncertainty about joining recent hike dissents, and highlighting uneven price increases alongside skepticism on a stronger labor market together point to a nuanced stance that tempers outright hawkish conviction and leaves the Dollar sensitive to incoming data. The mix of caution on labor strength and acknowledgement of uneven inflation suggests policy patience rather than an imminent push for higher rates.

The FXS Fed Sentiment Index slipped by 0.46 points to 148.24, indicating a mild pullback in perceived hawkishness despite remaining firmly above the neutral 100 mark. This keeps the broader Fed tone in hawkish territory, but Barkin’s “close call” framing and reluctance to clearly endorse further hikes contribute to the slight softening captured by the FXS Fed Sentiment Index relative to the stronger readings implied by the FXS Speechtracker.