FX.co ★ Rupiah Weakens as Dollar Firms and Political Risks Mount

The Indonesian rupiah weakened beyond IDR 18,150 per U.S. dollar on Wednesday, erasing recent gains as a stronger greenback pressured sentiment following hotter-than-expected U.S. inflation data that reinforced expectations of further Federal Reserve rate hikes. The rupiah led regional declines amid rising political uncertainty after Vice President Gibran Rakabuming reportedly offered to resign, following legal challenges to the validity of his educational credentials. Investor concerns over potential foreign capital outflows also resurfaced ahead of MSCI’s November review of Indonesia’s equity market. At the same time, recent retail sales figures signaled softening consumer spending despite solid GDP growth in the third quarter. Bank Indonesia continued to intervene in the foreign exchange market to support the currency, but worries intensified over a growing policy trade-off between defending the rupiah and sustaining economic momentum. The central bank is scheduled to hold its November policy meeting next week, after leaving its benchmark interest rate unchanged for a fourth consecutive month in October, following a cumulative 100 basis points of hikes in May and June.