Dollar steadies with Fed in focus, early rate cut bets recede
Most Asian currencies fall, yuan battered by China disinflation jitters; Dollar steady
On Monday, most Asian currencies fell, with the Chinese yuan among the worst performers after data pointed to a sustained deflationary trend in the country. Meanwhile, the dollar steadied in anticipation of a Federal Reserve meeting.
The greenback saw some strength on Friday after a stronger-than-expected reading, which dented expectations for an early interest rate cut by the Fed.
The Chinese yuan lost 0.3% as data released over the weekend showed the country remained in disinflation for a second consecutive month, with inflation falling at its fastest pace in three years.
Concerns over a Chinese economic slowdown ramped up as the reading came on the heels of several middling data prints for November.
Steeper losses in the yuan were held back by a stronger daily midpoint fix from the People’s Bank of China
Steeper losses in the yuan were held back by a stronger daily midpoint fix from the People’s Bank of China. But sentiment towards the currency remained dour, and it appeared set to test the 7.2 level once again.
This week, focus is on Chinese trade, inflation, and retail sales data for November, due on Friday.
Concerns over China weigh on broader Asian currencies
Concerns over China weighed on broader Asian currencies. The South Korean won fell 0.2% on its high trade exposure to China, while the Singapore dollar and Malaysian ringgit lost 0.2% and 0.1%, respectively.
The Japanese yen fell 0.3%, but traded close to four-month highs hit last week following a slew of hawkish signals from the Bank of Japan. But the BOJ is still expected to keep policy ultra-loose in the near-term.
Indian rupee hovers close to record lows
The Indian rupee hovered close to record lows after the RBI stood pat on interest rates last week. But the RBI warned of a potential uptick in inflation, with data for November due later this week.
The Australian dollar and New Zealand dollar both rose slightly in Asian trade, after marking some gains on Friday.
Stronger-than-expected data saw traders scaling back bets that the Fed could cut interest rates in early-2024. Futures show a 43% chance of a 25 basis point cut in March, down from earlier expectations of over 60%.
The central bank is set to keep interest rates steady at the conclusion of a two-day meeting on Wednesday. But its outlook on rates, especially in the light of recent labor market strength, will be in focus.
