Asian currencies showed little movement on Wednesday as investors exercised caution ahead of signals on interest rate cuts from the Federal Reserve, with the dollar trading at two-week highs.
The Japanese yen continued its decline after the Bank of Japan maintained accommodative conditions despite raising interest rates for the first time in 17 years.
Dollar Strengthens Ahead of Fed Meeting
The dollar index and dollar index futures saw slight gains in Asian trading, with all eyes on the conclusion of the Fed meeting later in the day. While the central bank is expected to keep interest rates unchanged, investors are eager for any hints regarding potential rate cuts, particularly from Fed Chair Jerome Powell’s post-meeting press conference.
Traders are concerned about the possibility of a hawkish stance from the Fed, especially in light of recent higher-than-expected inflation data.
Yen Weakens to 4-Month Lows
The Japanese yen extended its losses, with the USD/JPY pair surging nearly 2% since Tuesday to around 151.30, its highest level since mid-November. Even with Japanese markets closed for a holiday, the yen faced significant weakness.
Against the euro, the yen fared even worse, with the EUR/JPY pair reaching its highest level since 2008.
Analysts at Citi highlighted that U.S. interest rates remained the primary driver of the yen’s movement. They cautioned that the yen might strengthen later in 2024 if U.S. rates began to decline. Additionally, there were concerns about potential intervention in currency markets by the Japanese government if the USD/JPY pair crossed the 152 mark.
Stability in Broader Asian Currencies
Other Asian currencies remained largely stable as investors awaited the Fed’s decision. The Australian dollar recovered slightly after the Reserve Bank of Australia’s decision to keep interest rates steady. The Chinese yuan and South Korean won saw minimal movement, while the Indian rupee weakened slightly against the dollar, rising above the 83 level.
Overall, anticipation of the Fed’s announcement deterred significant currency movements in the region.