Dollar Rebounds as Markets Question Early Rate Cuts
Asian Currencies Face Steep Losses Amid Dollar Rebound
Most Asian currencies faced steep losses on Wednesday as anticipation of more cues on the Federal Reserve led markets to question expectations for early interest rate cuts. The dollar steadied after a sharp overnight rebound, casting uncertainty on the potential for rate cuts.
Asia’s Fragile Sentiment Amid Weak Economic Data and Natural Disasters
Sentiment towards Asia remained fragile following weak economic data from China and a devastating earthquake in Japan. The region’s economic stability faces challenges amidst these adversities.
Yuan’s Renewed Weakness Amid Dismal Economic Readings
The yuan fell 0.1%, with renewed weakness this week after dismal economic readings for December. However, further losses were limited by a stronger-than-expected midpoint fix from the People’s Bank of China.
Stability in the Australian Dollar Amid Local Market Closure
The Australian dollar remained stable, with local markets closed for a week-long holiday. This stability contrasts with the volatility seen in other Asian currencies.
Impact of Fed Cues on Dollar and Euro in Asian Trade
The dollar and euro fell slightly in Asian trade, after surging about 0.8% in the prior session. The greenback was now trading comfortably above a more-than five-month low hit towards the end of 2023.
Expectations for Dollar Strength and Fed Cues
Analysts warned that the minutes may not be as dovish as markets are hoping, which could dent risk sentiment. The Federal Reserve’s cues are eagerly anticipated to gauge the future strength of the dollar and its impact on global markets.
Anticipated Data on the US Labor Market and Rate Cut Expectations
The upcoming data for December is expected to provide more cues on the US labor market and is anticipated to show more cooling. Despite this, traders have already priced in a nearly 70% chance for a 25 basis point cut in March 2024.
Broader Asian Currencies and Market Volatility
Broader Asian currencies traded sideways, cooling from a rally in December as risk appetite soured. Most regional currencies were nursing steep losses from Tuesday, following the dollar’s rebound.
Regional Currencies and Market Movements
The Thai baht fell 0.1% and moved back towards record lows hit in late-2023, while the Indonesian rupiah saw little strength even as data showed stronger-than-expected growth in the fourth quarter.
