Dollar Rebounds before Powell Speech
Asian Currencies in Tight Range as Dollar Rebounds
Most Asian currencies remained within a tight range on Friday, while the dollar rebounded from 3-½ month lows. This comes as market participants anticipate more cues on interest rates from Federal Reserve Chair Jerome Powell.
Regional Currencies Cool After November Rally
Regional currencies cooled slightly after a stellar rally through November, amid growing conviction that the Fed was done raising interest rates. The central bank is now widely expected to begin trimming rates in 2024, with markets seeking more cues on the timing of the rate cuts.
Mixed Economic Readings from Asia
Some mixed economic readings from Asia also provided middling cues to markets. Manufacturing activity rebounded unexpectedly in November. However, this reading contrasted with data released on Thursday, which showed a sustained contraction in the manufacturing sector.
Inflation Gauge Remains Above 2% Target
Overnight data showed that the Fed’s preferred inflation gauge remained comfortably above the central bank’s 2% target in October. This uncertainty over the Fed’s potential pivot helped the dollar recover sharply from its lowest levels since mid-August.
Focus on Powell’s Rhetoric
Powell is set to speak at two separate events on Friday, with any changes to the Fed Chair’s rhetoric largely in focus after several other Fed officials suggested that the central bank was done raising interest rates. The dollar was also nursing steep losses for November, amid growing conviction that the Fed was done raising interest rates.
Market Expectations and Central Bank Meetings
The central bank is widely expected to keep rates on hold amid easing inflation. Asian currencies had rallied through the month on the same notion. A Bank of Japan meeting is also on tap next week, with the bank set to hold rates steady.
In summary, the Asian FX market is experiencing muted movements as the focus shifts to Powell’s speech and central bank meetings next week. The uncertainty surrounding interest rate hikes and inflationary pressures continues to influence currency movements in the region.
