Asian Currencies Fall as Dollar Strengthens
Investing.com– Most Asian currencies fell on Monday, while the dollar steadied near three-week highs as stronger-than-expected U.S. payrolls data saw traders scale back bets that the Federal Reserve will cut interest rates early.
The payrolls reading put upcoming U.S. inflation data squarely in focus, as markets sought more cues on when the central bank could potentially begin trimming rates this year.
Regional currencies clocked steep losses after Friday’s reading, and saw little relief on Monday as traders hunkered down before a string of inflation readings from major Asian economies this week.
Dollar Strength and Rate-Cut Bets
The dollar firmed slightly in Asian trade on Monday, remaining within sight of a three-week high.
The greenback clocked a strong gain in the first week of 2024, as traders grew uncertain over when the Fed could begin trimming interest rates. This was exacerbated by a stronger-than-expected reading on Friday, with strength in the labor market giving the central bank more headroom to keep rates higher for longer.
The odds for a 25 basis point cut in March decreased to nearly 63%, down from the 74% chance seen last week.
Japanese Yen and BOJ Doubts
Asian trading volumes were somewhat held back by a holiday in Japan on Monday. The Japanese currency rose 0.1% after nearly sliding to 145 against the dollar on Friday.
The Japanese currency also logged its worst weekly loss since late-2022 after an earthquake battered central Japan. Rebuilding and stimulus efforts in the wake of the disaster are expected to potentially delay the Bank of Japan’s plans to begin tightening its ultra-loose policy, which is a major weight on the yen.
Asia FX and Inflation Test
Broader Asian currencies retreated slightly on Monday, extending losses from the previous session. Regional markets were also bracing for a string of key inflation readings this week.
The Indian rupee rose 0.1%, with an inflation reading for December also due on Friday. Central bank intervention in forex markets helped the rupee recover from near record lows last week.
Among other Asian units, the Thai baht and Malaysian ringgit fell 0.1% each.
While regional currencies marked some strength in December on expectations of early interest rate cuts, they still ended 2023 largely unchanged amid pressure from high U.S. interest rates. This trend is expected to continue in early-2024.
