Dec 5 2024: Asian currencies broadly advanced on Thursday as investors speculated on a potential December interest rate cut by the U.S. Federal Reserve. However, the South Korean won continued to struggle, reaching a two-year low amid ongoing political and economic challenges.
Fed Signals Rate Cuts, Dollar Weakens Slightly
At a New York Times event, Federal Reserve Chair Jerome Powell emphasized the resilience of the U.S. economy while signaling a cautious approach to further rate reductions. His remarks reinforced market expectations for a December rate cut, causing the U.S. Dollar Index to slip by 0.1%.
Despite the dollar’s slight weakness, cautious sentiment persisted in Asia, driven by political uncertainty in South Korea, which could impact investor confidence across the region.
South Korean Won Declines Despite Intervention
The South Korean won lost 0.5% against the U.S. dollar on Thursday, reflecting persistent pressure despite government efforts to stabilize markets. Earlier, the currency had hit a two-year low before recovering slightly following President Yoon Suk-Yeol’s decision to revoke martial law amid widespread criticism.
To support the won, South Korea’s Finance Ministry announced a 40 trillion won ($28.35 billion) market stabilization fund, with the central bank prepared to intervene through bond purchases and repo operations if needed. However, weak third-quarter GDP growth of just 0.1% compounded challenges for the currency, which has already lost over 9% of its value this year.
Other Regional Currencies Exhibit Mixed Performance
- Chinese Yuan: The USD/CNY pair rose 0.2%, with the yuan trading near four-month highs.
- Indian Rupee: The USD/INR pair inched higher to 84.723, with expectations of further depreciation beyond 85 per dollar in the next six months, despite Reserve Bank of India interventions.
- Malaysian Ringgit and Japanese Yen: Both currencies saw modest gains, supported by hopes for U.S. rate cuts, with the USD/MYR and USD/JPY pairs down 0.5% and 0.2%, respectively.
Investors Await Rate Decisions
Market sentiment was bolstered by Powell’s comments but tempered by geopolitical risks and concerns over South Korea’s economic outlook. Investors are closely monitoring the Reserve Bank of India’s rate decision on Friday and further developments in the U.S. Federal Reserve’s monetary policy.
Markets are pricing in a 78% likelihood of a quarter-point rate cut by the Fed in December, according to CME FedWatch, keeping attention firmly on global central bank moves.
