Asia FX weak, dollar near 1-yr high on doubts over Dec rate cut
Investing.com– Most Asian currencies nursed losses on Thursday, while the dollar remained close to one-year highs amid growing doubts over whether the Federal Reserve will cut interest rates in December.
Speculation over expansionary policies under a Donald Trump presidency was a key boost to the dollar in recent weeks, as was sticky inflation data for October, along with less dovish signals from the Fed.
Sentiment in Asia was also quashed by uncertainty over more Chinese stimulus measures, while broader risk appetite waned in the face of heightened tensions between Russia and Ukraine.
Dollar near 1-yr high as traders pare bets on Dec rate cut
The dollar index and dollar index futures steadied in Asian trade after a strong overnight session.
The greenback was buoyed by increased caution over future interest rate cuts by the Fed. Traders were seen pricing in a 53.3% chance for a 25 basis point cut in December, much lower than the 85.7% chance seen a day ago, CME Fedwatch showed.
Traders also ramped up bets that the Fed will hold to 46.7% from 14.3% last week.
The shift in expectations came after Fed Chair Jerome Powell said last week that resilience in the U.S. economy gave the central bank more time to consider future rate cuts. His comments were also preceded by data showing sticky inflation in October.
Trump’s election win had also underpinned the dollar since early-November, with the president-elect expected to enact more inflationary policies, given his protectionist stance towards trade and immigration.
U.S. purchasing managers index data is due this week and is set to provide more cues on the world’s largest economy. Jobless claims data is also due later on Thursday, while several Fed officials are set to speak in the coming days.
Asia FX weak as rate jitters weigh
Asian currencies were pressured by the prospect of relatively higher U.S. interest rates, as well potential trade headwinds from a Trump presidency.
The Chinese yuan was among the worst hit by these concerns, given that Trump has vowed to impose steep import tariffs on the country. The yuan’s USDCNY pair moved little on Thursday, and was close to near four-month highs.
Underwhelming signals on Chinese stimulus also pressured the yuan.
The Japanese yen firmed slightly on Thursday, but was also nursing steep losses against the dollar through October and November. The USDJPY pair fell 0.3% after crossing the 155 yen level this week.
The Australian dollar’s AUDUSD pair rose 0.2% after hitting a near four-month low last week. The South Korean won’s USDKRW pair was flat, as was the Singapore dollar’s USDSGD pair.
The Indian rupee’s USDINR pair rose 0.1% and was close to record highs of around 84.6 rupees, hit earlier in November.
PMI readings from several major Asian economies, including Japan, China, Australia and India are due in the coming days, offering up more cues on business activity in the region.
Japanese consumer inflation is also on tap this Friday.