Dec 13 2024: Asian currencies weakened on Friday as the dollar strengthened ahead of next week’s Federal Reserve meeting. Disappointing signals on economic stimulus from China’s Central Economic Work Conference (CEWC) also weighed heavily on the yuan, compounding broader market caution.
Dollar Strengthens on Fed Anticipation
Investors adopted a cautious stance ahead of the Fed’s expected 25 basis point rate cut, with concerns about the central bank’s longer-term interest rate strategy supporting the dollar.
- The U.S. Dollar Index rose 0.2%, while dollar futures edged up 0.1% in Friday’s Asian trade.
Yuan Slips as China’s Stimulus Falls Short
The Chinese yuan weakened against the dollar after the CEWC failed to unveil aggressive stimulus measures.
- Onshore USD/CNY rose 0.2%, while offshore USD/CNH edged up 0.1%.
While the CEWC pledged to increase the budget deficit, boost debt issuance, and ease monetary policy, markets viewed these measures as insufficient to immediately counter China’s deflationary pressures and U.S. trade tensions under incoming President Donald Trump.
The yuan is poised for another weekly decline, extending a trend of weakness fueled by tariff concerns. ING analysts noted that tariffs and trade tensions could trigger further depreciation.
Asian Currencies Decline as Dollar Set for Weekly Gain
The dollar’s resilience positioned it for its best weekly performance in over a month, driven by stronger-than-expected producer inflation data and expectations of a slower pace of Fed rate cuts in 2025.
- The Thai baht (USD/THB) led regional losses, rising 0.8%.
- The Indonesian rupiah (USD/IDR) increased 0.3%, while the South Korean won (USD/KRW) gained 0.2% amid political uncertainties surrounding a potential presidential impeachment.
Other currencies saw more modest movements:
- The Japanese yen (USD/JPY) climbed 0.3%, as reports suggested the Bank of Japan would maintain rates next week, contrary to earlier rate hike expectations.
- The Singapore dollar (USD/SGD) edged slightly higher, while the Australian dollar (AUD/USD) remained largely unchanged.
- The Indian rupee (USD/INR) hovered near its all-time low reached on Thursday.