Feb 23 2024: On Friday, most Asian currencies saw a decline while the dollar stabilized following hawkish remarks from the Federal Reserve and robust U.S. labor data, casting doubts on the possibility of early rate cuts in the U.S.
In Asian trading, both the dollar index and dollar index futures remained relatively unchanged, showing slight weekly declines after stepping back from their three-month highs earlier in the week. Despite this, the outlook for the dollar remained optimistic, as indications grew stronger that the Federal Reserve intends to maintain higher interest rates for an extended period.
Fed Governor Christopher Waller’s comments, stressing the need for more evidence of inflation moderation before considering rate cuts, echoed sentiments expressed by several other Fed officials. The minutes of the late-January Fed meeting reaffirmed this stance earlier in the week. Additionally, unexpected data showing a drop in jobless claims underscored the resilience of the labor market, further diminishing expectations of early rate cuts by the Fed.
The anticipation of prolonged higher U.S. rates negatively impacted Asian markets, narrowing the gap between risky and low-risk yields, and thus exerting pressure on most regional currencies throughout the week.
Despite a market holiday in Japan, the Japanese yen remained above the 150 level against the dollar. Japanese officials expressed concerns about potential intervention measures amidst persistent worries over a slowing Japanese economy, highlighted by its unexpected recession in the fourth quarter. The yen’s levels above 150 against the dollar previously prompted record-high intervention by the Japanese government in 2022, a trend that may recur if the currency’s weakness persists.
In other Asian currencies, the Chinese yuan slightly declined amidst ongoing speculation about potential stimulus measures from Beijing. The South Korean won dipped by 0.2%, while the Singapore dollar remained steady ahead of crucial inflation data scheduled for release later on Friday.
Conversely, the Australian dollar bucked the trend, advancing by 0.2% as it extended its rebound from three-month lows. The Indian rupee remained flat but appeared to distance itself from the 83 level, supported by positive sentiment following a strong purchasing managers index reading for the service sector released on Thursday.
