Dec 21, 2023: Most Asian currencies displayed limited movement on Thursday, showing marginal declines from the previous session as the dollar rebounded from nearly five-month lows, creating uncertainty regarding the Federal Reserve’s anticipated timeline for initiating interest rate adjustments.
The dollar experienced a surge in safe-haven demand following a period of volatility in equity markets, prompting investors to secure profits after a recent market rally.
Asian currencies, having recorded substantial gains over the past week following the Fed’s indications of concluding interest rate hikes and hinting at potential rate cuts in 2024, witnessed a slight retreat.
The anticipation of rate cuts possibly taking effect as early as March 2024 was tempered by cautionary statements from several Fed officials. Their concerns revolved around persistently high U.S. inflation, which significantly exceeds the Fed’s targeted 2% annual rate.
Despite the prevailing expectations reflected in Fed Fund futures, indicating a probability of over 60% for a 25 basis point rate cut in March, uncertainties surrounding these potential cuts contributed to a slowdown in the rally across Asian markets.
On Thursday, the Japanese yen observed a 0.4% increase, recuperating from significant losses earlier in the week, post the Bank of Japan’s reaffirmation of its ultra-dovish stance. However, the yen lingered close to a five-month high noted the previous week.
The Australian dollar rebounded by 0.3%, recovering from substantial losses in the preceding session and maintaining its position close to a more than four-month high.
Rate-sensitive currencies such as the South Korean won and the Singapore dollar recorded modest gains of 0.1% and 0.2%, respectively.
Given the onset of the year-end holiday season, regional trading volumes remained subdued.
