Most Asian currencies rose on Thursday as the dollar fell after the Federal Reserve signaled an interest rate cut was imminent, while the Japanese yen hit a five-month high amid hawkish signals from the Bank of Japan.
But the Chinese yuan lagged its peers, as did the Australian dollar in the wake of more weak economic signals from Asia’s largest economy.
Gold suffered sharp losses after Federal Reserve Chairman Jerome Powell said on Wednesday that a September interest rate cut was possible given more encouraging data on inflation and the labor market.
His comments showed that markets are almost entirely pricing in a 25 basis point rate cut in September, with a slim chance of a 50 basis point cut.
Prospects of interest rate cuts helped boost gains for most Asian currencies.
Japanese Yen Continues to Rise, USD/JPY Below 150 Amid BoJ Tightness
The yen was the best performer in Asia on Thursday, extending strong gains from the previous session after the Bank of Japan signaled more potential increases this year.
The yen pair fell below the 150 yen level for the first time since March, continuing the sharp decline seen during most of July.
The Bank of Japan raised short-term interest rates by 15 basis points and announced plans to halve the pace of quantitative easing by early 2026 only. The yen initially reacted volatilely to the move, as the extended timetable for tapering QE was seen as dovish.
But comments by Governor Kazuo Ueda have pushed the outlook for the Bank of Japan back into hawkish territory. Ueda said the BOJ is prepared to raise interest rates higher this year amid expectations of higher inflation and improving economic conditions.
Ueda explained that higher wages would lead to increased consumption and inflation, which is in line with the central bank’s expectations.
He also added that 0.5% is not the maximum that the Bank of Japan can raise interest rates.
The prospect of higher domestic interest rates and lower U.S. rates bodes well for the yen, which has underperformed for the past two years. But the yen’s strength has also unwound the carry trade more broadly.
Chinese Yuan Falls as More Economic Woes Hit
The Chinese yuan weakened against most of its Asian peers on Thursday after more weak purchasing managers’ index data from the country.
The pair rose 0.2%, recording sharp volatility in recent sessions, as traders suffered from weak readings from the country.
Data showed an unexpected contraction in China’s manufacturing sector, in line with government purchasing managers’ index data released on Wednesday.
The readings raised concerns about a broader slowdown in China’s biggest economic engine, worsening sentiment toward the country and prompting more calls for stimulus measures from Beijing.
Concerns about China weighed on the Australian dollar, which fell 0.2 percent due to the currency’s exposure to large trade deals with China. The stronger-than-expected data did little to boost the Aussie, as the trade surplus remained near a four-year low.
Other Asian currencies rose on the prospect of a U.S. rate cut. The South Korean won fell 0.4 percent, while the Indian rupee was steady after a sharp drop from record highs on Wednesday.