Jakarta. Rupiah strengthened against the US dollar on Tuesday as optimism grew over a potential US-China trade agreement and expectations mounted for a rate cut by the Federal Reserve.

The local currency closed 13 points higher at Rp 16,608 per dollar, recovering from Monday’s close at Rp 16,621, according to market data.

Traze Andalan Futures Director and currency analyst Ibrahim Assuaibi said the rupiah gained ground as markets welcomed progress in trade discussions between the United States and China. Presidents Donald Trump and Xi Jinping are scheduled to meet in South Korea on Thursday, fueling investor confidence.

The rupiah also held firm despite rising geopolitical risks in Europe, after Trump imposed his first sanctions on Russia in his second term, targeting major oil companies Lukoil and Rosneft.

“Following the sanctions, Lukoil announced plans to sell its international assets. This marks the most significant move yet by a Russian firm in response to Western restrictions since the Ukraine war began in February 2022,” Ibrahim said in a written statement on Tuesday.

Meanwhile, the rupiah’s strength was underpinned by market expectations that the Fed will cut interest rates by at least 25 basis points during its policy meeting on Wednesday. Softer inflation data released last week and signs of a cooling US labor market have reinforced speculation of further easing.

“Broader uncertainty in the US economy, including an ongoing government shutdown, will likely prompt more accommodative moves by the Fed,” Ibrahim noted.

On the domestic front, sentiment improved after the Indonesian government outlined key strategies to manage its Rp 9,000 trillion debt. The plan focuses on boosting fiscal efficiency, supporting economic growth, and improving the tax-to-GDP ratio to curb the deficit.