Asian Currencies Weaken as Dollar Firms Ahead of Key U.S. Inflation Data
Market Expectations
Most Asian currencies weakened on Tuesday, while the dollar firmed as markets hunkered down before key U.S. inflation data that is widely expected to factor into the path of interest rates.
Fed’s Stance
The inflation data comes after a chorus of Federal Reserve officials warned that the central bank was in no hurry to begin trimming interest rates in 2024- a trend that bodes well for the dollar and poorly for risk-heavy, high-yield currencies.
Impact of Trading Holiday
A week-long trading holiday in China and Hong Kong kept Asian trading volumes muted. But the fell slightly in offshore trade.
BOJ Cues and Yen Performance
The was among the worst-performing regional units in recent sessions, losing 0.1% on Tuesday and trading at 149.53- a near three-month low and just a hair away from breaking above the 150 level, which heralds more losses in the yen.
Japanese Economy
Losses in the yen came chiefly after a top Bank of Japan official signaled that even when the bank begins raising interest rates this year, it was unlikely to raise rates aggressively. This scenario presents little relief to the yen, which was pressured chiefly by a widening gulf between local and U.S. interest rates- a trend that is worsened by the prospect of higher-for-longer U.S. rates.
Asian Currencies Trend
Broader Asian currencies trended lower. The lost 0.3% and traded close to a three-month low. A private survey showed that Australian rebounded to a 10-month high in early-February, amid increased optimism over easing inflation and no more interest rate hikes.
Global Market Movements
The was flat, while the shed 0.1%. The tread water after data on Monday showed Indian (CPI) inflation eased as expected in January, but remained well above the Reserve Bank of India’s 4% annual target.
Impact on Dollar and Euro
The and rose 0.1% each in Asian trade, and remained within sight of a recent three-month high as traders looked to later interest rate cuts this year.
Market Expectations
is expected to show inflation eased in January, but remained well above the Fed’s 2% annual target- which gives the bank little impetus to begin cutting interest rates early.
Rate Cut Predictions
The dollar had shot up in late-January as traders began sharply scaling back bets that the Fed will begin cutting interest rates in March and May. The showed markets pricing in an only 45.4% chance for a 25 basis point cut in June.
