Asian currencies slipped on Monday as the U.S. dollar held near a three-week high, with markets anticipating a U.S. Federal Reserve rate cut later this week. Mixed economic data from China added to concerns about the country’s sluggish economic recovery, further weighing on regional currencies.
The Federal Reserve is expected to lower interest rates by 25 basis points this week, but expectations of a slower pace of rate cuts in 2025 have kept the dollar strong. The U.S. Dollar Index, though slightly lower in early Asian trading, remained close to its highest level in three weeks.
The Chinese yuan weakened following the release of mixed economic data. The onshore USD/CNY pair rose 0.2%, hovering near a two-year high, while the offshore USD/CNH pair gained 0.1%. Industrial production in China grew in line with expectations in November, supported by recent government stimulus measures.
However, retail sales figures fell short of forecasts and were lower than last year’s numbers, highlighting persistent weakness in consumer spending. While home prices in China showed signs of stabilizing with the slowest decline in 17 months, the overall economic picture remains uncertain. Analysts at ING noted that consumer confidence remains fragile, and although the government has pledged stronger support for consumption in 2024, significant recovery in retail sales is not expected until 2025.
The disappointing retail sales data has heightened concerns about China’s uneven recovery, putting additional pressure on currencies across the Asia-Pacific region.
The dollar stayed firm, supported by expectations of a slower Fed rate-cut trajectory in the coming year. The dollar index remained near its highest level since late November, reflecting its strength amid ongoing global economic uncertainties.
Among other currencies, the Japanese yen saw a slight rise, with the USD/JPY pair inching up 0.1% as reports indicated that the Bank of Japan is likely to maintain its current interest rates this week, contrary to earlier expectations of a hike. The Singapore dollar’s USD/SGD pair edged slightly higher, while the Australian dollar strengthened by 0.3%.
In South Korea, the won weakened slightly following political turmoil after President Yoon Suk Yeol was impeached by the opposition-led parliament over his attempt to impose martial law. Despite the political instability, the country’s finance ministry reassured markets on Sunday, pledging to deploy stabilizing measures to support the economy if needed.
The Indian rupee remained stable, with the USD/INR pair holding near its all-time high from the previous week. Meanwhile, regional currencies are expected to remain under pressure as the dollar continues to benefit from the Fed’s cautious approach to future rate cuts and ongoing geopolitical and economic challenges in the Asia-Pacific region.
