Dollar Steady as Asian Currencies Retreat
Asian Currencies Retreating
Most Asian currencies retreated on Wednesday, while the dollar steadied from recent losses as markets remained on edge before key U.S. inflation data that is expected to factor into the path of interest rates.
Regional Currencies and Interest Rates
Regional currencies were nursing steep losses over the first week of 2024, as markets questioned whether the Federal Reserve will begin trimming interest rates early in 2024. This notion boosted the dollar, helping the greenback rebound sharply from five-month lows.
Japanese Yen and BOJ Policies
The Japanese yen was the worst performer among Asian currencies so far in 2024, extending a slump from the prior year as traders grew more convinced that the Bank of Japan will delay a pivot away from its ultra-dovish policies. Rebuilding and stimulus measures in the wake of a devastating earthquake in central Japan are expected to offset any notion of policy tightening in the BOJ, at least in the near-term.
Asian Currencies Trending Lower
Broader Asian currencies trended lower as doubts over early rate cuts by the Fed saw traders remaining largely biased towards the dollar. The yuan fell 0.1% ahead of key data later this week, which is expected to show little improvement in Asia’s largest economy. Weakening sentiment towards China had battered the yuan through most of 2023, while the People’s Bank also steadily ran out of headroom to support the currency.
Dollar Steady, Inflation Awaited
The dollar and yen moved little in Asian trade on Wednesday, after seeing some strength in overnight trade. Focus remained chiefly on upcoming inflation data, which is expected to show inflation rose slightly in December. But sticky inflation, coupled with recent signs of strength in the labor market, give the Fed more headroom to keep rates higher for longer.
Conclusion
Fed officials also pushed back against bets for early rate cuts, given that inflation is expected to remain well above the Fed’s 2% annual target in the near-term.
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