Aug 20 2024: Most Asian currencies inched higher on Tuesday, while the U.S. dollar held steady at a more-than seven-month low, as expectations grew that the Federal Reserve will cut interest rates in September.
The dollar’s recent weakness comes ahead of Fed Chair Jerome Powell’s anticipated speech at the Jackson Hole Symposium on Friday, where further indications of a rate cut may be provided.
A softer dollar led to a strong rally in the Japanese yen on Monday, while the Chinese yuan saw a slight decline after the People’s Bank of China (PBOC) kept its benchmark loan prime rate unchanged, as expected.
Dollar Stabilizes at 7-Month Low, Eyes on Powell’s Address
The dollar index and its futures steadied in Asian trading after falling to their lowest levels since early January on Monday. The greenback’s decline was accompanied by a drop in U.S. Treasury yields, fueled by optimism that the Fed will reduce interest rates in September.
While Powell’s upcoming address is anticipated to shed more light on potential rate cuts, analysts do not expect him to provide a definitive timeline or specific details on the extent of the cuts. Traders are increasingly pricing in the possibility of a 25 basis point reduction in September, according to CME Fedwatch.
Lower rates could lead to more outflows from the dollar, potentially strengthening Asian markets.
Japanese Yen Retreats After Strong Rebound
The Japanese yen weakened slightly on Tuesday following a robust recovery in the previous session. The USD/JPY pair rose by 0.3% to 147.01 yen, after reaching as low as 145 yen. The yen’s recent strength was primarily driven by a weaker dollar and positive economic data from Japan, suggesting that the Bank of Japan may have room to raise interest rates further this year.
Chinese Yuan Slips as PBOC Holds Loan Prime Rate
The Chinese yuan’s USD/CNY pair increased by 0.1%, with limited support from the PBOC’s decision to keep its benchmark loan prime rate unchanged, as anticipated.
The PBOC’s hold in August followed an unexpected rate cut in July, aimed at boosting economic growth. The central bank is widely expected to implement further rate cuts this year amid growing concerns about an economic slowdown in China, a trend likely to keep the yuan under pressure.
Broader Asian currencies traded in a narrow range on Tuesday. The Australian dollar’s AUD/USD pair fell by 0.2%, even as minutes from the Reserve Bank of Australia’s August meeting revealed that the central bank had considered a rate hike but is likely to keep rates unchanged for an extended period.
The Singapore dollar’s USD/SGD pair rose by 0.2%, while the South Korean won’s USD/KRW pair increased by 0.1%. The Indian rupee’s USD/INR pair remained stable below record highs, with indications of continued market intervention by the Reserve Bank of India.
