Mar 11 2024: Most Asian currencies traded within narrow ranges on Monday, while the dollar remained near two-month lows as markets awaited crucial U.S. inflation figures for insights into potential Federal Reserve interest rate adjustments.
Following somewhat dovish signals from Fed Chair Jerome Powell and mixed labor market data, regional currencies saw some strength last week, reinforcing expectations of possible rate cuts by the central bank as early as June. This sentiment weighed heavily on the dollar, keeping it close to its recent two-month lows.
The Japanese yen, benefiting notably from the weakened dollar, surged to over a one-month high in the past two sessions. Trading around 147 to the dollar on Monday, the yen was further supported by growing speculation that the Bank of Japan (BOJ) could soon phase out its negative interest rates and yield curve control policies, potentially as soon as next week. An upward revision in GDP data suggested that Japan’s economy managed to avoid a technical recession in the fourth quarter, providing the BOJ with more room to adjust its policy stance.
Meanwhile, other Asian currencies traded flat to slightly lower. The Australian dollar declined by 0.2% amid diminishing expectations of further interest rate hikes by the Reserve Bank, coupled with signs of cooling economic growth prompting anticipation of potential rate cuts.
On the other hand, the South Korean won and Singapore dollar strengthened marginally, while the Indian rupee held steady near six-month highs ahead of key inflation data scheduled for later in the week.
The dollar index and dollar index futures steadied above the 102 level on Monday, following significant losses last week. Powell’s remarks regarding easing inflation and the potential for rate cuts weighed on the greenback, compounded by data showing unexpected growth in nonfarm payrolls for February, albeit with substantial downward revisions to January’s figures and rising unemployment. With Powell’s comments highlighting the significance of Tuesday’s CPI data, market attention remains focused on inflation trends as a key determinant for any future Fed interest rate decisions.
