Jakarta. The rupiah strengthened against the US dollar on Wednesday, buoyed by softer-than-expected US inflation data that reinforced expectations of future interest rate cuts by the Federal Reserve.

The currency closed the afternoon session at Rp 16,865 per dollar, up 12 points from the previous close of Rp 16,877, after briefly gaining as much as 20 points earlier in the day.

Ibrahim Assuaibi, director at Traze Andalan Futures, said the rupiah’s appreciation followed the release of US consumer price index data that came in below market expectations. US core CPI rose 0.2% month-on-month in December and 2.6% year-on-year, strengthening speculation of monetary easing ahead.

“Markets are now pricing in around two rate cuts by the Fed in 2026,” Ibrahim said in a written statement on Wednesday.

The rupiah also found support as investors remained focused on geopolitical risks, particularly unrest in Iran marked by anti-government protests, which has heightened concerns over broader instability in the Middle East.

The situation prompted warnings from US President Donald Trump, who signaled the possibility of military action and threatened to impose a 25% tariff on countries conducting business with Iran.

Additional support for the rupiah came amid concerns over the independence of the US central bank after the Trump administration opened a criminal investigation involving Fed Chair Jerome Powell.

“While these developments have unsettled investors, central bank chiefs and major bank executives have publicly backed Powell, underscoring the importance of safeguarding the Fed’s autonomy amid political pressure,” Ibrahim said.