Feb 14, 2024: On Wednesday, most Asian currencies faced notable losses, with the dollar hovering near three-month highs following robust U.S. inflation data, stirring concerns that the Federal Reserve might maintain higher interest rates for an extended period.
The Japanese yen was particularly impacted, slipping below the 150 level against the dollar for the first time since late November. This decline was exacerbated by dovish signals from the Bank of Japan, signaling a gradual approach to raising interest rates from ultra-low levels.
Expectations of prolonged elevated U.S. interest rates further weighed on the yen, with Tuesday’s consumer price index (CPI) report reinforcing the narrative. The dollar index remained elevated, supported by reduced expectations for early rate cuts and a shift in Fed rate hike projections.
With higher U.S. rates on the horizon, risk-sensitive Asian currencies faced headwinds, leading to flat trading for many. The Australian dollar rebounded slightly from a recent low, while the South Korean won and Singapore dollar struggled near multi-month lows.
In offshore trading, the Chinese yuan remained stable but hovered near a three-month low, while the Indian rupee saw little movement but remained under pressure, approaching its record low from 2023. Overall, Asian FX markets remained jittery amid concerns about U.S. inflation and the monetary policy outlook.