Asian Currencies Hold Steady as Dollar Hovers Around Four-Month Lows
Asian Currencies Steady as Dollar Hovers
Most Asian currencies remained within a narrow range on Friday, while the dollar lingered near four-month lows as investors await further indications of potential interest rate cuts by the Federal Reserve in 2024.
Market sentiment was influenced by dovish signals from the Fed, with traders pricing in between three to five rate cuts by the central bank in 2024. This led to gains in regional units and a second consecutive week of decline for the dollar.
However, the uncertainty surrounding the timing of the cuts limited the gains in Asian currencies, as several Fed officials expressed skepticism about the imminent monetary easing from the central bank.
Japanese Yen Weakens on Soft Inflation Data
The Japanese yen was among the weaker performers, declining 0.3% after data revealed a decrease in inflation as expected in November. The currency was also on track for a 0.2% weekly loss.
The weakening yen was attributed to a cooling Japanese economy and easing food prices, which alleviated pressure on the Bank of Japan to pivot away from its ultra-dovish policy. Despite this, the central bank offered little clarity on its future stance during its recent meeting, contributing to the yen’s decline.
Meanwhile, broader Asian currencies traded cautiously ahead of key U.S. inflation data, with the Chinese yuan lagging behind its peers due to concerns over the country’s economic rebound.
Dollar at Four-Month Low with PCE Inflation in Focus
The dollar and euro showed minimal movement in Asian trade after reaching their weakest levels since early August. The slight downward revision in third-quarter GDP data sparked optimism for interest rate cuts in 2024, despite reflecting strong growth in the U.S. economy.
All eyes were on the Personal Consumption Expenditures (PCE) inflation data, which is expected to show persistent stickiness in U.S. inflation. Any signs of sustained inflation could prompt the Fed to maintain higher interest rates, potentially triggering a pullback in Asian currencies.
Markets are currently positioning for a 25 basis point rate cut in March 2024, indicating the anticipation of further developments in the global economy.
