Most Asian currencies experienced minimal movement as a mild consolidation in the dollar provided some relief. Meanwhile, the Japanese yen firmed as expectations of government intervention offset data indicating an economic recession.
The regional currencies were still feeling the impact of a hotter-than-expected U.S. inflation reading, leading traders to scale back expectations of early interest rate cuts by the Federal Reserve. Despite the dollar’s slight retreat in overnight trade, it remained near its highest level since mid-November.
The yen rose 0.2% but hovered around its weakest level since November. It broke past the 150 level against the dollar earlier in the week. However, concerns about potential government intervention limited further losses in the yen. Japanese officials warned that they were monitoring any drastic moves in the yen, which could trigger currency market intervention.
Gross domestic product data revealed that Japan’s economy unexpectedly contracted in the fourth quarter, entering a technical recession as private spending weakened. This economic weakness raises doubts about the Bank of Japan’s plans to raise interest rates in 2024. Analysts at ING suggested that the trend could delay the BOJ’s plans, and they now expect a hike by June.
Despite Thursday’s modest strength, the yen remained the worst-performing Asian currency for the week due to concerns about higher-for-longer U.S. rates, which have weighed on the Japanese currency for the past two years.
Other Asian currencies traded in a flat-to-low range but were nursing steep losses for the week due to concerns about U.S. rate trends. The Australian dollar fell 0.1%, hovering near three-month lows, as labor market data showed a cooling trend in January, reducing the Reserve Bank’s impetus for further interest rate hikes.
The Indian rupee and the Singapore dollar remained flat, while the South Korean won fell 0.4%. The Chinese yuan fell 0.1% in offshore trade, with mainland markets closed for the week-long Lunar New Year holiday. The Indonesian rupiah fell 0.4%, despite a stock market rally, as Defence Minister Prabowo Subianto appeared poised to win the country’s presidency.