Dollar Strengthens as Asian Currencies Struggle
Asia FX Muted, Dollar Strong as Powell Downplays Rate Pause Bets
Most Asian currencies remained stagnant or weakened on Friday, while the dollar maintained its recent gains. Federal Reserve officials’ comments prompted traders to reconsider their expectations of no further interest rate hikes.
China’s Economic Slowdown Impacts Asian Sentiment
Concerns over China’s economic slowdown affected sentiment in Asia, following a series of weak data prints for October. While this data raised hopes for additional stimulus measures from Beijing, it also indicated sustained weakness in the yuan, which was on track for a muted weekly finish.
Japanese Yen Weakens, Triggering Concerns of Market Intervention
The Japanese yen weakened past the 151 level against the dollar, raising concerns about potential currency market intervention by Japanese authorities. A dovish Bank of Japan weighed heavily on the yen, signaling few plans to wind down its ultra-dovish policy.
Broader Asian Currencies Show Little Movement
Broader Asian currencies also exhibited minimal movement, with the Thai baht losing 0.1%. The Bank of Thailand flagged potential upside in inflation during a quarterly monetary policy review, reiterating its comments made after an interest rate hike earlier in the week.
Aussie Dollar Set to Decline
The Australian dollar was poised to lose over 2% for the week after a somewhat dovish tone from the Reserve Bank of Australia.
Indian Rupee Near Record Lows
The Indian rupee hovered near record lows, although steeper losses were somewhat mitigated by sharp declines in oil prices.
Southeast Asian Currencies Exhibit Mixed Performance
In Southeast Asia, the Philippine peso traded sideways, while the Indonesian rupiah sank over 0.6%.
Strong Dollar Set for Weekly Gain After Powell Speech
The euro and pound showed minimal movement in Asian trade on Friday but were poised to increase by about 0.8% for the week after a series of hawkish comments from Fed officials.
Market Reaction to Powell’s Comments
Fed Chair Jerome Powell’s comments on Thursday indicated that the Fed was not convinced that monetary policy remained sufficiently restrictive, warning of potential further rate hikes if necessary.
Market Expectations for Fed Rate Hikes
Expectations for an end to Fed rate hikes had surged last week after Powell’s seemingly less hawkish comments. However, markets now appeared less confident that the bank would pause.
Impact of U.S. Rate Hike Prospects on Asian Currencies
The prospect of higher-for-longer U.S. rates bodes poorly for Asian currencies, as the gap between risky and low-risk yields narrows. U.S. Treasury yields also surged in overnight trade, adding further pressure to regional markets.
