USD Surges Against IDR Amid Hawkish Fed Sentiment and Rising Inflation

The US Dollar (USD) has strengthened against the Indonesian Rupiah (IDR), with the currency pair trading around 17,770 during Asian hours on Tuesday. This comes as traders have sharply increased their bets on a September rate hike following remarks from Federal Reserve officials indicating that more work remains to bring inflation back to the 2% target.

The CME FedWatch Tool now prices in a greater than 66% probability of a rate hike in September, up significantly from roughly 41% just a week ago. Strategists at OCBC Group Research describe this shift as a 'reset, not reversal', noting that they have updated their forecasts after the earlier USD sell-off but still expect moderate USD strength into early 2027.

Indonesia's annual inflation accelerated to 3.19% in August from 2.88% in July, slightly topping market expectations of 3.13%. Core inflation reached its highest level since March 2023 at 2.92%, beating the anticipated 2.8%.