Dollar Strengthens as Asian Currencies Weaken on Fed Jitters

Dollar at near two-week high amid Fed jitters

The dollar and Treasury yields rose in Asian trade, hitting a near two-week high as markets braced themselves before the Federal Reserve’s next meeting. While the central bank is expected to keep rates on hold, there is still a possibility of another rate hike this year.

Recent signs of strength in the U.S. economy provide the Fed with more leeway to keep rates higher for a longer period. The upcoming economic growth data is anticipated to show a robust pickup.

The prospect of higher U.S. rates for an extended period has weighed on most Asian currencies, diminishing the appeal of risk-driven assets. Many regional currencies have experienced significant losses this year due to the rise in U.S. rates.

Japanese yen breaches 150; government intervention, BOJ moves in focus

The Japanese yen broke past the key 150 level for the second time this month, increasing speculation that the Japanese government will intervene in currency markets to prevent further weakness. The yen reached a one-year low against the dollar.

The currency briefly surpassed 150 on October 3, prompting rumors of government intervention. Before October 22, the yen had not breached 150 since the onset of the lost decade in 1990.

As the yen weakens and Japanese bond yields surge, there is increased speculation that the Bank of Japan will adjust its yield curve control policy during its upcoming meeting. Economic data due on Friday is expected to provide further insight into potential policy changes.

Worsening risk sentiment favors the dollar, other Asian currencies retreat

Most other Asian currencies declined as worsening risk sentiment favored the dollar. Concerns over an escalation in the Israel-Hamas conflict added to the negative sentiment after Israel reiterated its commitment to a ground assault on Gaza.

The Chinese yuan remained flat as traders tried to gauge the economic impact of the government’s planned 1 trillion yuan ($136 billion) bond issuance. The currency continues to face pressure from doubts surrounding the economic recovery and the property market slump.

The South Korean won lost ground as data showed higher-than-expected economic growth in the third quarter, raising expectations that the Bank of Korea would halt its interest rate hikes.

The Australian dollar slid, ending a two-day rally, as data showed a decline in business investment for the third quarter. However, expectations of an interest rate hike by the Reserve Bank in November are likely to support the dollar in the coming week.

Overall, concerns over U.S. interest rates have led to a weakening of most Asian currencies. The Japanese yen’s breach of 150 has raised speculation about government intervention, while other Asian currencies have retreated due to worsening risk sentiment. The dollar has strengthened as a result, reaching a near two-week high. The upcoming Federal Reserve meeting and economic data releases will provide further insight into the future direction of these currencies.