Feb 8, 2024: Most Asian currencies saw slight gains on Thursday as the dollar and Treasury yields eased from recent highs, although concerns over deflation in China continued to weigh on sentiment.
With expectations for early rate cuts by the Federal Reserve dialed back following strong economic data and hawkish comments from Fed officials, markets are now focused on U.S. interest rates. This shift in sentiment has contributed to a pullback in the dollar from its recent three-month high, along with a retreat in U.S. Treasury yields.
Asian currencies edged higher, with the Australian dollar performing well after the Reserve Bank of Australia hinted at the possibility of interest rate hikes due to sticky inflation.
The Indian rupee also strengthened slightly ahead of a Reserve Bank of India meeting, where interest rate decisions and economic forecasts will be closely watched.
Meanwhile, the Japanese yen remained near a two-month low amid uncertainty over the Bank of Japan’s policy direction.
Concerns over prolonged U.S. interest rate hikes restrained significant gains in Asian currencies, as Fed officials emphasized the absence of near-term monetary easing.
Persistent economic weaknesses in China further dampened sentiment across the region. Chinese inflation data for January showed slower-than-expected growth in consumer prices and continued contraction in producer prices, signaling ongoing economic challenges.
Although January’s inflation figures suggest a bottoming out of the current deflation cycle, analysts anticipate a gradual pickup in inflation in the coming months, aided by demand during the upcoming Lunar New Year holiday.
However, the offshore yuan weakened against the dollar, nearing a 2-1/2 month low, as the People’s Bank of China intervened in currency markets. Despite efforts to stabilize the yuan, concerns over China’s economic health persisted, reflecting subdued discretionary spending and challenging economic conditions.