Contents
The start of 2024 has witnessed a decline in most Asian currencies, with the dollar holding steady near three-week highs. This shift, marked by Asia FX sinks, comes as stronger-than-expected U.S. payrolls data led traders to scale back their expectations of an early Federal Reserve interest rate cut.
Highlights:
- Asian currencies decline at the start of 2024, marked by Asia FX sinks, due to a robust dollar near three-week highs.
- Dollar gains momentum amid uncertainty on Fed rate cuts. Traders revise March rate-cut probability down to 63% from 74% after strong U.S. payrolls data.
- Yen sees a 0.1% rise after significant losses, influenced by an earthquake and doubts about the Bank of Japan’s policy tightening plans.
- Asian currencies continue to retreat, with the Australian dollar declining, Chinese yuan falling, and Indian rupee rising. Asia FX sinks amid uncertainties about inflation and U.S. interest rates in early 2024.
Read more: US Jobs Report Impact on Asian Markets and Dollar Strength
Dollar Strength and Rate-Cut Speculations
In Asian trade on Monday, both the dollar index and dollar index futures showed slight firmness, remaining close to a three-week high. The greenback gained strength in the first week of the year, fueled by uncertainty about when the Fed might initiate interest rate cuts. The robust nonfarm payrolls reading on Friday further diminished expectations, providing the central bank with more flexibility to maintain higher rates. Traders, as indicated by the CME Fedwatch tool, reduced the probability of a 25 basis point cut in March to nearly 63%, down from 74% the previous week. The upcoming U.S. consumer price index (CPI) data for December is eagerly awaited, with expectations of an uptick in inflation, potentially dampening early rate-cut speculations.
Japanese yen nurses steep losses amid BOJ doubts
Asian trading volumes were affected by a holiday in Japan, where the yen saw a 0.1% rise following significant losses against the dollar on Friday. The yen experienced its most substantial weekly loss since late 2022, influenced by an earthquake in central Japan. Rebuilding efforts and stimulus measures post-disaster could delay the Bank of Japan’s plans to tighten its ultra-loose policy, impacting the yen. Attention now turns to the CPI inflation data from Tokyo for December, seen as a precursor to nationwide Japanese inflation trends.
Asia FX Sinks: Broader Asian Currencies and Inflation Concerns
Broader Asian currencies continued their retreat on Monday, with markets preparing for crucial inflation readings throughout the week. The Australian dollar saw a slight decline ahead of Wednesday’s monthly CPI indicator for November. The Chinese yuan, despite a stronger-than-expected daily midpoint fix by the People’s Bank, fell by 0.2% amid persistently weak sentiment towards China. Inflation data from China, expected to reveal continued deflation through December, is due on Friday, along with Chinese trade data. The Indian rupee, however, saw a 0.1% rise, with an eye on the inflation reading for December, following central bank interventions that helped recover from near-record lows last week. Other Asian units, such as the South Korean won and Singapore dollar, each experienced a 0.1% decline.
Conclusion
While regional currencies exhibited some strength in December on the anticipation of early interest rate cuts, they concluded 2023 largely unchanged, influenced by the pressure of elevated U.S. interest rates. This trend, marked by Asia FX sinks, is expected to persist into early 2024, as markets closely monitor inflation indicators and grapple with uncertainties surrounding the direction of central bank policies.
