Jan 3 2025: Asian currencies traded within a flat-to-low range on Friday, under pressure from a strong dollar as markets braced for a more gradual pace of interest rate cuts by the Federal Reserve in 2025.
Regional trading volumes remained subdued due to New Year holidays, with Japanese markets closed until next week.
Chinese Yuan Drops Amid PBOC Rate Cut Signals
The Chinese yuan emerged as one of Asia’s weakest performers, hitting its lowest point in nearly 16 months after a report by the Financial Times suggested that the People’s Bank of China (PBOC) would implement further interest rate cuts in 2025.
The yuan, along with other regional currencies, faced sharp losses throughout 2024, as the dollar benefited from the Federal Reserve’s hawkish stance and concerns over protectionist policies under President-elect Donald Trump.
Dollar Soars to 2-Year High on Slower Rate Cut Outlook
The dollar index and dollar index futures eased slightly, slipping 0.1% during Asian trading, but remained near a two-year peak achieved on Thursday.
The greenback’s strength was bolstered by stronger-than-expected weekly jobless claims data, which highlighted resilience in the U.S. labor market. A robust labor market allows the Federal Reserve to maintain a cautious approach to monetary easing.
In its December meeting, the Fed indicated a slower pace of rate cuts in 2025, citing persistent inflation concerns. While the U.S. economy remains resilient, the Atlanta Fed revised its fourth-quarter GDP estimate lower on Thursday.
Yuan Weakens Further on Monetary Policy Reform
The Chinese yuan’s decline deepened, with the USD/CNY pair rising nearly 0.4% to 7.3275, the currency’s weakest level since September 2023.
The Financial Times report noted that the PBOC plans to pivot toward a single benchmark interest rate as part of a broader monetary policy reform. This move follows a series of liquidity measures that have largely failed to reinvigorate China’s slowing economy over the past two years.
Weaker-than-expected purchasing managers’ index data for December also weighed on the yuan, reflecting slower growth in China’s manufacturing sector.
Broader Asian Currencies Struggle
Other Asian currencies saw limited movement but remained under pressure due to the Fed’s slower rate cut projections for 2025.
The Japanese yen weakened slightly, with the USD/JPY pair down 0.1% after touching a five-month high in late December.
The Australian dollar edged up 0.2%, while the South Korean won slipped 0.2% as the government reaffirmed its commitment to financial stability.
Meanwhile, the Indian rupee stabilized at 85.8 against the dollar after briefly crossing the 86-rupee mark earlier this week, hitting a record low.
