Dollar Recovers from Five-Month Low Amid Uncertainty Over Fed Rate Cuts
Most Asian currencies remained relatively stable on Thursday, with little movement as the dollar regained strength from near five-month lows. This comes amidst uncertainty surrounding the Federal Reserve’s plans to begin trimming interest rates.
The dollar saw a surge in safe haven demand following a downturn in risk-driven equity markets, prompting investors to take profits after a recent rally.
Asian currencies also experienced a pullback after a strong week of gains, following the Fed’s announcement that it would cease raising interest rates and hinted at potential rate cuts in 2024.
Traders have begun pricing in the possibility of rate cuts as early as March 2024, although several Fed officials cautioned against premature bets on rate cuts, citing U.S. inflation levels still exceeding the Fed’s 2% annual target.
Despite the market showing over a 60% chance of a 25 basis point rate cut in March, uncertainty around potential cuts dampened the rally in Asian markets.
On Thursday, the yen rose 0.4%, recovering from significant losses earlier in the week after the Bank of Japan reaffirmed its ultra-dovish stance. However, the yen remained within striking distance of a five-month high reached last week.
All eyes are now on Japanese data due to be released on Friday.
Additionally, the yuan gained 0.3%, rebounding from substantial losses in the previous session and remaining close to an over four-month high.
Other rate-sensitive currencies such as the Australian dollar and the Korean won also showed signs of recovery, with gains of 0.1% and 0.2% respectively.
As the year-end holiday season commenced, regional trading volumes remained subdued.
Chinese Yuan Underperforms Amid Lingering Economic Concerns
The Chinese yuan declined by 0.15% on Thursday, continuing to lag behind other Asian currencies as markets remained cautious about China’s economic outlook.
The People’s Bank of China maintained its benchmark interest rate at record lows this week, struggling to strike a balance between stimulating economic growth and curbing further depreciation of the yuan.
Despite this, the central bank set a weaker daily midpoint for the yuan on Thursday, as the currency continued to face pressure from a series of weak economic data from China in November.
Furthermore, the yuan remained comfortably above the psychologically crucial 7 level against the dollar.
