Asian currencies weakened on Thursday, while the U.S. dollar remained close to a one-year high amid growing uncertainty about a potential interest rate cut by the Federal Reserve in December. The dollar’s strength has been supported by persistent inflation in October, signals of economic resilience from the Federal Reserve, and expectations of inflationary policies under a Donald Trump presidency.
In Asia, market sentiment was further dampened by doubts over additional stimulus measures in China and rising geopolitical tensions between Russia and Ukraine. The dollar index held steady during Asian trading after strong gains the previous day. Traders have significantly reduced their expectations for a December rate cut, with the odds of a 25 basis point reduction dropping to 53.3%, compared to 85.7% just a day earlier. Meanwhile, the likelihood of the Fed holding rates steady has risen to 46.7%, up from 14.3% last week.
Fed Chair Jerome Powell recently noted that the U.S. economy’s strength allows the central bank more time to evaluate future rate changes. Inflation data from October reinforced this cautious stance. Additionally, Trump’s election win has buoyed the dollar, as his administration is expected to implement policies that could increase inflation, including trade protectionism and tighter immigration controls.
Asian currencies have struggled under the pressure of rising U.S. interest rate expectations and trade concerns tied to Trump’s policies. The Chinese yuan remained close to four-month lows, weighed down by uncertainty over stimulus measures and fears of steep import tariffs. The Japanese yen showed slight gains, with the USDJPY pair declining 0.3% after crossing the 155-yen mark earlier this week.
The Australian dollar saw a small rebound, rising 0.2% after hitting a four-month low last week. The South Korean won and Singapore dollar were largely unchanged, while the Indian rupee weakened slightly, with the USDINR pair moving up 0.1% and nearing record highs of 84.6 rupees.
Key economic data, including PMI figures from Japan, China, Australia, and India, is expected in the coming days and may offer insights into regional business activity. Japan is also set to release consumer inflation data on Friday, which will provide additional context for the outlook on Asian currencies. With uncertainties around global monetary policy and geopolitical tensions, market sentiment in Asia remains cautious.
