Dec 17 2024: Asian currencies traded lower on Tuesday as caution dominated markets ahead of key interest rate decisions from major central banks, particularly the U.S. Federal Reserve.
The Fed is widely expected to cut interest rates by 25 basis points on Wednesday. However, expectations of a slower pace of easing in 2025 have lent strength to the U.S. dollar, pressuring Asian currencies.
The U.S. Dollar Index remained stable during Asian trading hours, while the U.S. Dollar Index Futures saw a slight uptick.
Regional Currencies Mixed Ahead of Central Bank Meetings
The Japanese yen (USD/JPY) remained largely flat as reports from Reuters indicated the Bank of Japan (BOJ) is unlikely to raise interest rates this week, diverging from earlier forecasts of a possible hike.
The Indonesian rupiah (USD/IDR) weakened 0.4%, with markets anticipating Bank Indonesia will maintain its key interest rate on Wednesday to support the currency.
In Thailand, the baht (USD/THB) edged 0.2% higher. The Bank of Thailand is also expected to hold rates steady on Wednesday, following its unexpected rate cut in October.
The Philippine peso (USD/PHP) ticked down 0.1% as investors awaited the Bangko Sentral ng Pilipinas (BSP) policy meeting on Thursday. The BSP is projected to cut its benchmark interest rate by 25 basis points for the third consecutive time.
Dollar Strength Weighs on Asian Markets
The U.S. dollar held near its strongest level since November 26, reversing earlier declines. Markets remain positioned for a rate cut this week, but the CME FedWatch tool indicates a rising probability of either no further rate cuts or just one 25-basis-point reduction in 2025, up to 37% from 21% a week ago.
Elsewhere in Asia, the Chinese yuan (USD/CNY) inched 0.1% higher as concerns over slowing consumer spending deepened following data showing a sharp deceleration in Chinese retail sales growth for November.
The South Korean won (USD/KRW) strengthened slightly, falling 0.2%, amid ongoing political tensions following President Yoon Suk Yeol’s impeachment over his martial law decree.
The Singapore dollar (USD/SGD) inched higher, while the Australian dollar (AUD/USD) saw minor losses.
Meanwhile, the Indian rupee (USD/INR) weakened to an all-time low, reaching 84.918 against the U.S. dollar.