Dec 26 2024: Asian currencies edged lower on Thursday, pressured by a resilient U.S. dollar hovering near a two-year high. The Indian rupee, in particular, hit a record low against the greenback, while broader market sentiment remained cautious following the Federal Reserve’s hawkish outlook for 2025.
Dollar Strength Persists Amid Rate Projections
The U.S. Dollar Index held steady in Thursday’s Asian trade, continuing to benefit from the Federal Reserve’s recent indication of fewer rate cuts in 2025 due to persistent inflation concerns. This shift has bolstered the dollar’s appeal, pressuring Asian currencies that have already faced headwinds from global uncertainties.
Indian Rupee Hits Historic Low
The Indian rupee fell to its lowest level ever, with the USD/INR pair reaching a record high of 85.497, down 0.2% on Thursday. The pair crossed the 85-rupee threshold last week, reflecting the rupee’s ongoing struggles amid dollar strength and domestic economic pressures.
Mixed Movements Across Asian Currencies
- The Chinese yuan weakened slightly, with the USD/CNY pair inching higher as markets digested news of China’s plans to issue a record 3 trillion yuan ($411 billion) in special treasury bonds in 2024 to stimulate its economy.
- The Singapore dollar saw the USD/SGD pair rise 0.1%, while the Australian dollar slipped 0.2% against the U.S. dollar.
- The South Korean won dropped 0.4% as the USD/KRW pair climbed, while the Philippine peso bucked the trend with a 1% gain, driven by localized factors.
Yen Holds Steady Amid Rate Hike Speculation
The Japanese yen traded flat, with the USD/JPY pair largely unchanged. Speculation over a potential interest rate hike by the Bank of Japan (BOJ) remains a focal point, as BOJ Governor Kazuo Ueda hinted at progress toward achieving the central bank’s 2% inflation target.
Japan’s government is preparing a record budget of 115.5 trillion yen ($735 billion) for the next fiscal year to address rising social security and debt-servicing costs. This comes as the BOJ ended its negative interest rate policy earlier this year and raised the short-term rate to 0.25%, with further hikes contingent on wage and price trends aligning with projections.
Outlook for Asian Currencies
The strong dollar, buoyed by expectations of sustained high U.S. interest rates and projections of robust economic performance under the incoming U.S. administration, has clouded the outlook for Asian currencies. Regional currencies face additional pressure from China’s economic slowdown and persistent inflationary challenges globally.
