Indonesian Rupiah struggles as traders adopt caution ahead of Fed decision

USD/IDR gains ground after two days of losses, trading around 17,770 during the Asian hours on Wednesday. The pair appreciates as the Indonesian Rupiah (IDR) faces challenges as traders adopt caution ahead of the Federal Reserve (Fed) policy decision due later in the day.

The US central bank is widely expected to maintain a cautious "wait-and-see" approach, keeping its benchmark interest rate unchanged within the 3.50% to 3.75% range. Traders expect Fed Chair Kevin Warsh to adopt a more hawkish tone during his first policy meeting.

The upside of the USD/IDR pair could be limited as risk aversion eases amid growing expectations of a breakthrough peace deal between the United States (US) and Iran. US Vice President JD Vance stated on Tuesday that President Donald Trump may release a preliminary agreement to end the war ahead of schedule, following the president's earlier comments that the framework had already been signed.

Meanwhile, Iranian Foreign Minister Seyed Abbas Araghchi confirmed that a new round of negotiations aimed at reaching a final, comprehensive peace deal is set to begin in Switzerland.

The Indonesian Rupiah (IDR) could face further challenges as falling foreign exchange reserves highlight the rising cost of central bank intervention. However, traders expect the Bank Indonesia (BI) to maintain a hawkish tightening bias on Thursday to defend the currency.