Feb 19 2024: Most Asian currencies maintained narrow ranges on Monday, while the dollar stabilized near three-month highs as robust U.S. inflation data diminished expectations of imminent interest rate cuts.
Both the dollar index and dollar index futures hovered close to their recent three-month peaks during Asian trading, following the release of higher-than-anticipated producer price index inflation figures for January last Friday.
These figures, coming shortly after a robust consumer price index reading, heightened concerns that persistent inflationary pressures would dissuade the Federal Reserve from implementing early interest rate cuts in 2024. Such a scenario doesn’t bode well for Asian currencies, with traders now projecting a potential U.S. rate reduction only by June.
In Asia, Chinese markets cautiously resumed trading as investors awaited confirmation of sustained spending momentum following the week-long Lunar New Year holiday.
The yuan weakened by 0.1% and remained close to a three-month low, although its further decline was curbed by a strong daily midpoint fix by the People’s Bank of China. The central bank is widely anticipated to maintain its benchmark loan prime rate at record lows during Tuesday’s session.
Other Asian currencies largely traded flat to slightly lower. The Singapore dollar showed minimal movement, while the South Korean won dipped by 0.3%.
Meanwhile, the Australian dollar inched up by 0.1% ahead of the release of minutes from the Reserve Bank of Australia’s recent meeting scheduled for Tuesday. The RBA’s meeting minutes had hinted at the possibility of further interest rate hikes, bolstering the Aussie’s strength.
The Indian rupee remained steady around the 83 level against the dollar, while the Thai baht saw a notable uptick despite data revealing weaker-than-expected fourth-quarter economic growth in Thailand.
The Japanese yen hovered around the 150 mark against the dollar, with traders remaining cautious amidst concerns over potential government intervention in currency markets.
The yen had recently dropped to three-month lows amid growing expectations that the Bank of Japan would proceed cautiously in tightening its accommodative monetary policy. Moreover, pressure from the prospect of sustained U.S. interest rate hikes weighed on the currency.
The 150 level holds significant psychological importance for the yen, historically prompting strong responses from the Japanese government to stabilize the currency. Senior government officials issued verbal warnings to currency markets last week following the yen’s recent decline.
Recent data also revealed an unexpected recession in the Japanese economy during the fourth quarter of 2023.
