Indonesian Rupiah holds ground as Bank Indonesia intensifies efforts to stabilize markets

USD/IDR inches higher after opening at a bearish gap, remaining in negative territory and trading around 18,110 during the Asian hours on Thursday. The pair continues to face downward pressure as the Indonesian Rupiah (IDR) finds support from Bank Indonesia’s (BI) pledge to intensify market stabilization following the unexpected departure of Governor Perry Warjiyo.

To reassure investors, Bank Indonesia emphasized its reliance on a broad policy mix beyond benchmark interest rates. This toolkit includes direct spot foreign exchange intervention, onshore and offshore non-deliverable forwards (NDFs), and the issuance of rupiah-denominated securities (SRBI) to manage market liquidity and draw foreign capital, building on a total of 100 basis points in rate hikes implemented since May.

However, the US Dollar (USD) could regain momentum and push the pair higher following a hawkish pause by the Federal Reserve (Fed). Although the Fed kept interest rates unchanged in the 3.50%–3.75% target range at its July meeting, an outcome broadly anticipated by markets, the decision exposed a hawkish divide within the central bank. Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed Chief Neel Kashkari all dissented, advocating instead for an immediate 25 basis point rate hike.

Reinforcing this stance during the post-meeting press conference, Fed Chair Kevin Warsh signaled that while the Fed will refrain from offering explicit forward guidance on future rate paths, it remains fully committed to taking whatever action is necessary to achieve its 2% inflation target.

Adding to market volatility, escalating geopolitical tensions in the Middle East continue to influence global financial sentiment. Risk appetite remains muted following President Donald Trump’s pledge of a decisive response to a recent attack on U.S. forces in Jordan. Meanwhile, diplomatic negotiations remain stalled, largely due to Tehran’s firm stance on maintaining control over the strategically vital Strait of Hormuz.

Fed’s warsh doubles down on 2% goal, keeping Dollar bulls engaged

Warsh’s press conference tone was notably more forceful than usual, with the FXS Speechtracker score at 7/10 compared to the established baseline of 6/10, underscoring a firmer hawkish stance. The insistence that “only one target and it is 2%,” coupled with remarks that inflation “cannot be cured in 9 weeks” and that the Committee “will not hesitate to act,” signals a resolute commitment to price stability even as Warsh acknowledges impressive economic resilience and materially higher nominal and real yields. By stressing that the Committee is steering clear of forecasting while focusing on trends and underlying inflation dynamics amid shocks, Warsh reinforces a data-aware but not data-bound approach that keeps expectations anchored around a strict 2% objective.

The FXS Fed Sentiment Index jumped by +18.94 points to 147.58, firmly in hawkish territory and consistent with the stronger tone captured by the FXS Speechtracker. This sizeable move reflects market perception that the Fed remains resolute on delivering the 2% inflation target, a backdrop that should continue to underpin the Dollar against peers.