Jan 2 2025: Asian currencies began 2025 on a subdued note, trading in flat-to-lower ranges on Thursday, as expectations of slower U.S. Federal Reserve rate cuts this year dampened investor sentiment.
The Chinese yuan led regional declines, with the USD/CNY pair climbing 0.3% to 7.3190, its highest level in over a year. Caixin PMI data revealed weaker-than-expected growth in China’s manufacturing sector, signaling that the effects of recent stimulus measures were waning. Similar findings from government PMI data earlier this week have added to concerns over China’s slowing recovery.
Regional trading remained light, with major markets, including Japan, closed for the New Year holidays.
Dollar Strength Keeps Pressure on Asian FX
The U.S. dollar held steady near its highest levels since November 2022, supported by prospects of slower rate cuts by the Federal Reserve in 2025 and expectations of protectionist policies under incoming President Donald Trump.
The dollar index and dollar index futures showed little movement during Asian hours, reflecting broad strength in the greenback.
Yuan Falls, Trade Headwinds Persist
China’s yuan weakened further as disappointing PMI readings underscored economic headwinds. The outlook for China remains clouded by potential trade challenges under Trump’s administration, but Beijing is expected to respond with additional fiscal stimulus to stabilize the economy.
Asian Currencies Nurse 2024 Losses
Asian currencies steadied on Thursday but remained under pressure following a challenging 2024. Many currencies saw significant declines in recent months due to a stronger U.S. dollar and growing concerns over U.S. economic policies.
The Japanese yen struggled as dovish signals from the Bank of Japan weighed heavily. The USD/JPY pair traded near a five-month high of 158 yen.
The South Korean won firmed slightly but ended 2024 as one of the region’s worst performers, with the USD/KRW pair rising nearly 15% over the year amid political instability in the country.
In contrast, the Singapore dollar benefited from stronger-than-expected GDP growth of 4% in 2024, although slowing growth in the fourth quarter raised concerns about its near-term outlook.
The Australian dollar rebounded 0.5% after hitting a year-long low, while the Indian rupee saw the USD/INR pair drop 0.3% after the currency reached a record low of 86 rupees earlier this week.
