Asia FX muted, dollar slips from 2-yr high on soft inflation data

Most Asian currencies moved little on Monday, while the dollar steadied from a tumble from over two-year highs after soft U.S. inflation data spurred some hopes that interest rates will still fall in 2025. 

Asian currencies were nursing steep losses against the dollar from last week, although they trimmed some declines on Friday after the soft inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policy under incoming President Donald Trump.  Dollar slips from 2-yr high as PCE data misses expectations 

The dollar index and dollar index futures both steadied on Monday after clocking sharp losses on Friday.

The greenback slid from an over two-year peak after PCE price index data- the Federal Reserve's preferred inflation gauge- read softer-than-expected on Friday. 

Still, the reading remained above the Fed’s 2% annual target, keeping uncertainty over interest rates in play.

The Fed had cut interest rates by 25 basis points last week, but flagged a slower pace of interest rate cuts in the coming year, citing concerns over sticky inflation and resilience in the labor market. 

The Fed is expected to cut rates twice in 2025, although the path of rates still remains uncertain.

Markets took some relief from the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill. Asia FX pressured by rate uncertainty 

Despite clocking some gains on Friday, most Asian currencies were still trading lower for December, as the outlook for interest rates remained uncertain.

The Japanese yen’s USD/JPY pair rose 0.1% to around 156.59 yen, after rising as far as 158 yen last week following dovish signals from the Bank of Japan.

The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025. 

The Chinese yuan’s USD/CNY pair rose 0.1%, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan. 

The Singapore dollar’s USD/SGD pair was flat ahead of inflation data due later in the day, while the South Korea’s won’s USD/KRW pair rose 0.3%.

The Australian dollar’s AUD/USD pair rose slightly after sinking to a two-year low last week. 

The Indian rupee’s USD/INR pair steadied after hitting a record high of over 85 rupees last week.

 

Source: Investing.com