Feb 1, 2024: Most Asian currencies faced a retreat on Thursday, with the dollar hovering near a seven-week high after the Federal Reserve opted to keep interest rates unchanged, dispelling expectations of an imminent rate cut in March.
The strength of the dollar, which surged in the wake of the Fed’s comments, exerted pressure on regional currencies. The dollar index and dollar index futures each rose by 0.2% on Thursday, approaching their highest levels since mid-December.
The Chinese yuan was among the notable underperformers, slipping by 0.2%. Economic data revealed limited improvement in China’s slow economic recovery, with a private survey indicating that the pace of growth in the manufacturing sector appeared to be slowing. Additionally, data showed a sharp decline in the country’s home sales in January, adding to the challenges posed by the ongoing property crisis.
The Australian dollar fell by 0.1% following weaker-than-expected building approval data for December.
On a positive note, the South Korean won rose by 0.2%, driven by data revealing better-than-expected export growth in January. This resulted in a less-than-expected contraction in the country’s trade balance.
The Japanese yen stood out among its Asian counterparts, experiencing a second consecutive session of gains. The Bank of Japan’s (BOJ) January meeting summary of opinions indicated active discussions about a potential shift away from its ultra-dovish stance. While the BOJ did not directly signal the timing of a policy tightening, the summary suggested an increasing number of policymakers viewed conditions favorably for a pivot away from negative interest rates. Higher Japanese interest rates could provide crucial support for the yen, which has been impacted by a widening gap between local and U.S. rates over the past two years.
As the Fed downplayed early rate-cut expectations, markets are now anticipating possible rate cuts in May.