Nov 22 2024: Asian currencies were largely subdued on Friday, weighed down by a strong U.S. dollar, which held near a 13-month high. The Japanese yen stabilized after consumer inflation came in slightly above forecasts, keeping market expectations of further monetary tightening alive.
Regional Currencies Under Pressure
Most Asian currencies have struggled in recent weeks amid dollar strength fueled by reduced expectations of aggressive Federal Reserve rate cuts. Concerns about potential implications of U.S. President-elect Donald Trump’s policies on Asian economies—particularly China—also dampened sentiment.
- Chinese Yuan (USDCNY): Edged 0.1% higher, nearing a four-month low. The yuan has depreciated by 1.8% in November, pressured by limited signs of robust Chinese stimulus measures.
- South Korean Won (USDKRW) & Singapore Dollar (USDSGD): Both remained flat, with losses of nearly 2% each against the dollar this month.
- Indian Rupee (USDINR): Hovered near record lows at around 84.5 rupees.
- Australian Dollar (AUDUSD): Flat, reflecting the broader regional trend.
Dollar Remains Steady at Peak Levels
The dollar index rose slightly to 107.06, maintaining its momentum after reaching a one-year high of 107.15 on Thursday. Dollar strength has been supported by robust U.S. economic data and tempered expectations for Federal Reserve rate cuts.
Key developments include:
- Sticky inflation readings and better-than-expected jobless claims data, reducing the probability of a December rate cut.
- Speculation that Trump’s policies could stoke inflation and limit the Fed’s ability to cut rates in the future.
Fed Chair Jerome Powell has signaled caution, stating the central bank is not in a hurry to reduce rates, citing economic resilience. Traders now see a 61.3% probability of a 25-basis-point rate cut in December, down from 72.2% last week.
Yen Stabilizes on Strong CPI Data
The Japanese yen (USDJPY) fell 0.1% on Friday but held steady after sharp losses earlier in the week.
- October consumer price index data exceeded expectations, with core inflation rising above the Bank of Japan’s (BOJ) target.
- Analysts anticipate another BOJ rate hike in December, following two increases in 2024.
- BOJ Governor Kazuo Ueda emphasized that yen fluctuations would be a key factor in the bank’s December policy review.
While inflation remains a concern, Japanese business activity contracted for the fifth consecutive month in November, reflecting weak private sector demand.
Outlook
Market attention is now on next week’s U.S. Personal Consumption Expenditures (PCE) index release, which is expected to provide further cues on the Fed’s rate trajectory. In Japan, economic data ahead of the BOJ’s December meeting will also be closely monitored, particularly as inflation and yen dynamics shape expectations.
