On Wednesday, most Asian currencies weakened as traders became more cautious due to uncertainty surrounding U.S. interest rates and the upcoming presidential election. Meanwhile, the U.S. dollar maintained its strength, reaching a near three-month high.
Over the past two weeks, regional currencies have faced pressure as a resilient U.S. economy fueled expectations that the Federal Reserve will take a slower approach to cutting interest rates.
The Japanese yen took a particularly hard hit, falling to its lowest level in nearly three months. Speculation about a Japanese general election and an upcoming Bank of Japan meeting also added pressure on the currency.
Attention was also focused on potential stimulus measures from China, as the yuan hovered near two-month lows.
Dollar Strengthens as Yields Climb
The U.S. dollar index and futures gained about 0.1% during Asian trading, continuing their recent upward trend. Traders are betting on a slower pace of interest rate cuts from the Federal Reserve. According to CME FedWatch, there is an 85.9% chance of a 25-basis point cut in November, while a 14.1% chance remains that rates will hold steady.
This sentiment was further supported by strong economic data from the U.S., which has bolstered inflation expectations. Treasury yields have surged in response, with the 10-year yield reaching its highest point in three months.
The dollar has also gained momentum ahead of the 2024 U.S. presidential election, which is just two weeks away. Polls suggest a tight race, but Republican candidate Donald Trump appears to have gained a slight edge over Vice President Kamala Harris.
Yen Slides Further as USD/JPY Nears 152
The yen continued to lose ground, with the USD/JPY pair rising 0.5% on Wednesday, approaching 152 yen its highest level since late July. Concerns about the Bank of Japan’s ability to raise interest rates further, combined with potential changes in Japan’s leadership, have contributed to the yen’s weakness.
Japan’s general election, set for this Sunday, could result in the ruling Liberal Democratic Party needing a coalition to retain power. The Bank of Japan is also scheduled to meet next week, though rate hikes are not expected. Ahead of that, Tokyo’s consumer inflation data is due on Friday.
Broader Asian Currencies Under Pressure
Other Asian currencies also showed weakness. The Chinese yuan’s USDCNY pair edged up 0.1%, as markets awaited signals on fiscal policy from an upcoming National People’s Congress meeting.
The Singapore dollar’s USDSGD pair rose 0.1%, while the Australian dollar’s AUDUSD pair remained unchanged.
South Korea’s won saw its USDKRW pair rise 0.3%, while the Indian rupee’s USDINR pair hovered near record highs.
