Dec 20 2024: Most Asian currencies weakened on Friday as the U.S. dollar held near its highest levels in over a year, driven by the Federal Reserve’s projection of a slower pace of rate cuts in 2025. Meanwhile, the Japanese yen saw a slight recovery from its five-month low, supported by robust inflation data that partially offset the Bank of Japan’s dovish outlook.
The dollar index remained firm, bolstered by safe-haven demand despite concerns over a potential U.S. government shutdown. Both the dollar index and its futures ticked higher in Asian trading, maintaining their strongest levels since November 2023. Markets are now closely watching the upcoming PCE price index data for further guidance on U.S. monetary policy.
Yen Recovers Slightly on Strong CPI Data Amid BOJ’s Dovish Stance
The Japanese yen edged higher, with USD/JPY slipping 0.2% after November’s consumer price index (CPI) data came in stronger than anticipated.
Despite this recovery, the yen is still reeling from a sharp drop on Thursday, which saw USD/JPY reach a five-month peak of 157.93. The CPI data reinforced prospects for a future Bank of Japan rate hike, but comments from Governor Kazuo Ueda tempered expectations, suggesting that a rate increase might not occur until after spring labor wage negotiations in 2025.
The BOJ maintained interest rates and signaled a steady rise in inflation but remains cautious about immediate policy changes. Renewed verbal warnings from Japanese officials over yen weakness have also sparked speculation about potential government intervention.
Chinese Yuan Hits One-Year Low as PBOC Holds Rates Steady
The Chinese yuan weakened further, with USD/CNY rising 0.2% to its highest level since November 2023.
The People’s Bank of China (PBOC) left its benchmark loan prime rate unchanged on Friday, as anticipated. However, the central bank has limited room for further rate cuts due to ongoing yuan depreciation. While monetary easing measures have had minimal impact on China’s economic recovery, expectations are growing for increased fiscal stimulus in the coming year to support growth.
Broader Asian Currencies Under Pressure
Asian currencies largely extended their weekly losses on Friday as traders favored the dollar.
- Australian Dollar (AUD/USD): Fell 0.2%, hovering near a two-year low.
- South Korean Won (USD/KRW): Rose 0.4%, nearing its highest level in nearly 15 years.
- Singapore Dollar (USD/SGD): Remained flat.
- Indian Rupee (USD/INR): Stabilized after hitting a record high above 85 rupees earlier this week.
The strong dollar and continued uncertainty around global monetary policies have kept regional currencies under sustained pressure, highlighting market caution ahead of key U.S. economic data releases.
