Oct 23 2024: Most Asian currencies fell on Wednesday, weighed down by uncertainty over U.S. interest rates and the upcoming presidential election, while the U.S. dollar continued to hover near a three-month high.
Asian currencies have been under pressure for the past two weeks, as resilience in the U.S. economy increased expectations that the Federal Reserve will slow its pace of interest rate cuts.
The Japanese yen was one of the hardest-hit currencies, sinking to a near three-month low. Additionally, concerns surrounding Japan’s upcoming general election and an impending Bank of Japan (BOJ) meeting further weighed on the yen.
Traders also focused on potential stimulus signals from China, with the yuan remaining at two-month lows.
Dollar Rises as Yields Climb
The U.S. dollar index and its futures both edged up 0.1% in Asian trade, continuing their upward trend as investors bet on a slower pace of interest rate cuts by the Federal Reserve. According to CME’s FedWatch, traders see an 85.9% chance of a 25 basis point rate cut in November, with a 14.1% probability that rates will remain unchanged.
Recent data reflecting the resilience of the U.S. economy bolstered inflation expectations and supported higher Treasury yields, with the 10-year yield reaching a three-month high this week.
The dollar was also lifted by pre-positioning ahead of the 2024 U.S. presidential election. Recent polls and prediction markets show Republican nominee Donald Trump gaining an edge over Vice President Kamala Harris, although the race remains tight.
Yen Weakness Continues, USD/JPY Near 152
The Japanese yen continued its decline, with the USD/JPY pair rising 0.5% on Wednesday, nearing 152—its highest level since late July. The yen has unwound much of its gains over the past two months amid doubts over the BOJ’s capacity to further raise interest rates.
Compounding the yen’s struggles, Japan’s upcoming general election, scheduled for Sunday, could lead to the ruling Liberal Democratic Party forming a coalition to stay in power, adding political uncertainty. The BOJ is set to meet next week, but expectations for a rate hike are low. Prior to that, Tokyo’s consumer inflation data, due Friday, will offer additional economic signals.
Broader Asian Currencies Decline
Most Asian currencies were weaker. The Chinese yuan’s USDCNY pair rose 0.1%, with attention focused on the upcoming National People’s Congress meeting, which is expected to provide further insights on fiscal spending.
The Singapore dollar’s USDSGD pair also climbed 0.1%, while the Australian dollar’s AUDUSD pair remained steady.
The South Korean won’s USDKRW pair gained 0.3%, and the Indian rupee’s USDINR pair hovered near record highs.
