Dec 23 2024: Most Asian currencies saw limited movement on Monday, while the U.S. dollar stabilized after retreating from a two-year high. Softer U.S. inflation data raised hopes for eventual interest rate cuts in 2025, providing some relief to regional markets.
Asian currencies, which suffered substantial losses against the dollar last week, trimmed some of those declines following the release of weaker inflation figures on Friday. However, uncertainty over U.S. monetary policy and the incoming administration under President Donald Trump continued to weigh on sentiment.
Dollar Pulls Back After PCE Data Falls Short of Expectations
The dollar index and dollar index futures stabilized on Monday after sharp losses on Friday. The greenback had hit a two-year high before retreating following weaker-than-expected Personal Consumption Expenditures (PCE) price index data—the Federal Reserve’s preferred inflation gauge.
Despite the softer reading, inflation remains above the Fed’s 2% annual target, keeping speculation over future interest rate policy alive.
Last week, the Fed reduced interest rates by 25 basis points but signaled a slower pace of cuts in 2025 due to persistent inflation and a robust labor market. Markets currently anticipate two rate cuts in 2025, but the exact trajectory remains uncertain.
Sentiment was also buoyed by the U.S. government avoiding a shutdown through the passage of a last-minute spending bill.
Asian Currencies Remain Under Pressure Amid Rate Uncertainty
While Friday’s inflation data provided a brief reprieve, most Asian currencies continued to trade lower in December amid lingering uncertainty over U.S. interest rates.
- Japanese Yen: The yen edged 0.1% higher to 156.59 per dollar but remained pressured after touching 158 last week. The Bank of Japan’s dovish stance, coupled with expectations for rate hikes only by March 2025, weighed on the yen.
- Chinese Yuan: The yuan rose 0.1% against the dollar, hitting a one-year high, as concerns over China’s economic outlook persisted. While Beijing is expected to increase fiscal spending in 2025, loose monetary policy could undermine the yuan.
- Singapore Dollar: The Singapore dollar traded flat ahead of upcoming inflation data.
- South Korean Won: The won gained 0.3% but remained subdued amid global rate uncertainty.
- Australian Dollar: The Australian dollar edged higher after plunging to a two-year low last week.
- Indian Rupee: The rupee steadied after hitting a record low of over 85 per dollar last week.
As markets await clearer signals on U.S. and regional monetary policy, the outlook for Asian currencies remains closely tied to broader macroeconomic trends and developments in the global economy.
