Asian Currencies Retreat as Dollar Hits 7-Week High
Asian Currencies Retreat
Most Asian currencies retreated on Thursday as the dollar hovered near a seven-week high. The Federal Reserve’s decision to keep interest rates steady and dismiss expectations for a March rate cut contributed to the dollar’s strength.
Regional Currencies Pressured
Regional currencies were pressured primarily by the dollar’s strength, which surged after the Fed’s comments. The Korean won and the Singapore dollar rose by 0.2% each on Thursday, reaching their highest levels since mid-December.
Chinese Yuan Underperforms
The Chinese yuan was among the worst performers on Thursday, declining by 0.2% as data indicated little improvement in the sluggish economic recovery. China’s manufacturing sector grew as expected in January, but the pace of growth appeared to be slowing. Separate data showed a significant drop in the country’s home sales in January, pointing to more pressure on the worsening property crisis.
Other Currency Movements
The Indonesian rupiah fell by 0.1% following weaker-than-expected data for December, while the Thai baht rose by 0.2%, driven by better-than-expected economic growth in January, along with a smaller-than-expected shrinkage in the country’s GDP.
Japanese Yen’s Unique Movement
The Japanese yen was an outlier among its Asian peers, rising for a second consecutive session after the Bank of Japan’s January meeting showed policymakers actively discussing a potential pivot away from its ultra-dovish stance.
Fed’s Stance on Rate Cuts
Fed Chair Jerome Powell’s comments indicated that the central bank is not in a hurry to carry out any monetary loosening due to recent stickiness in inflation. This led traders to scale back bets on an early rate cut, with expectations now shifting towards the possibility of rate cuts from May 2024 onwards.
Market Expectations and Predictions
Goldman Sachs analysts anticipate five rate cuts in 2024, starting from May. Traders are currently pricing in over a 60% chance for a 25 basis point cut in May, reflecting the evolving market sentiment towards the Fed’s future monetary policy decisions.
