Dec 24 2024: Asian currencies traded within a narrow range on Tuesday, while the dollar extended its overnight gains, supported by expectations of a slower pace of U.S. interest rate cuts in 2025. With trading activity subdued ahead of the Christmas holiday, most regional currencies remained under pressure from the dollar’s strength.
Dollar Regains Momentum Near Two-Year High
The dollar index and dollar index futures climbed 0.1% in Asian trade, edging closer to a two-year high reached last week. While a softer-than-expected U.S. PCE price index reading for November temporarily weighed on the greenback, its recovery was fueled by the Federal Reserve’s revised outlook, signaling just two rate cuts in 2025 instead of the previously anticipated four.
Higher U.S. interest rates make risk-sensitive Asian assets less attractive, reducing capital inflows to the region and exerting pressure on local currencies.
Asian Currencies Struggle Amid Tight U.S. Monetary Policy
The prospect of slower U.S. rate cuts weighed on Asian currencies, compounded by concerns over local monetary policies and slowing economic growth in the region.
- Japanese Yen (USD/JPY): The yen fell 0.1%, trading below its recent peak of 158 yen. The Bank of Japan indicated it would take a cautious approach to further interest rate hikes, adding to the yen’s weakness.
- Australian Dollar (AUD/USD): The Aussie declined 0.2% after minutes from the Reserve Bank of Australia’s December meeting revealed policymakers’ anticipation of eventual monetary easing despite ongoing inflation risks.
- Chinese Yuan (USD/CNY): The yuan edged 0.1% higher, hovering near a one-year high as Beijing’s plans for increased fiscal spending and looser monetary policy in 2025 added pressure on the currency.
- Singapore Dollar (USD/SGD): The Singapore dollar weakened slightly by 0.1%, reflecting broader regional trends.
- Indian Rupee (USD/INR): The rupee also slipped 0.1%, maintaining its record low above 85 rupees amid concerns over domestic and global economic conditions.
Economic Policies in Focus
Regional markets are closely watching monetary and fiscal policy developments in major economies. Beijing’s signal to boost fiscal spending to counter slowing economic growth, and similar considerations by other central banks, may set the tone for Asian currency movements in the coming months.
