Most Asian currencies experienced minimal movement and were poised for a subdued weekly performance, as the prevailing market sentiment leans towards the belief that the Federal Reserve will not initiate interest rate cuts in the early part of this year.
Despite the dollar’s overnight decline from a three-month peak, prompted by unexpected contractions in January retail sales, regional currencies failed to find significant relief. The greenback pared a substantial portion of its losses after Federal Reserve Bank of Atlanta President Raphael Bostic suggested that it might take longer for the central bank to commence rate cuts. He emphasized the uncertainty surrounding whether inflation would return to the 2% annual target.
The dollar index and dollar index futures both recorded a 0.1% increase in Asian trade, contributing to approximately a 0.3% gain for the week—marking the fifth consecutive week of dollar appreciation. Bostic’s remarks followed recent consumer price index data, indicating an unexpected rise in inflation in January. Additional insights on U.S. interest rate trajectory are anticipated from producer price index inflation data and an address by San Francisco Fed President Mary Daly later in the day.
Despite the U.S. Consumer Price Index data leading traders to reduce expectations of Fed rate cuts in May or June, the resulting impact on most Asian currencies was minimal, leaving them on track for a week of muted movements.
Among the currencies, the Japanese yen witnessed a 0.6% decline this week, nearing a three-month low. This drop was attributed to growing speculations that the Bank of Japan might postpone its planned interest rate hikes in light of Japan unexpectedly entering a technical recession in Q4 2023. The yen was trading around 150.2 against the dollar, with potential losses limited due to expectations of potential government intervention in currency markets above the 150 level.
The Australian dollar fell by 0.2%, the Singapore dollar by 0.1%, and the South Korean won by 0.4%. The Indian rupee hovered around the 83 level. Waning expectations of early Fed interest rate cuts had previously impacted Asian markets at the start of the year, with regional currencies finding little relief amid the backdrop of anticipated higher U.S. rates.