Most Asian currencies rose on Monday, with the Japanese yen rising sharply amid growing bets that the Federal Reserve will cut interest rates in September, putting the dollar at a 13-month low.
Most regional currencies extended their gains from last week, especially after comments from Federal Reserve Chairman Jerome Powell on Friday that boosted expectations of an interest rate cut.
But expectations for more US economic data this week, particularly key inflation data, remain cautious, as markets remain uncertain about the size of the cut in September.
Dollar at 13-month low after September rate cut confirmed
Gold and silver prices fell slightly in Asian trading, trading at their weakest levels since July 2023.
The US dollar came under pressure due to Powell’s comments, as the Federal Reserve Chairman said that further slowdown in the labor market is unhealthy, and added that it is time to start adjusting policy accordingly.
Speaking at the Jackson Hole symposium, Powell noted that inflation is approaching the Fed’s 2% annual target, but said the timing and size of any rate cuts would remain dependent on economic data.
Powell’s comments boosted expectations of a rate cut in September, but showed traders were divided over whether to cut rates by 25 and 50 basis points.
His comments also saw the focus shift squarely to upcoming economic data this week, with data due out on Friday set to provide more accurate signals on interest rates.
The reading is the Federal Reserve’s preferred measure of inflation and is likely to factor into the central bank’s interest rate outlook.
Japanese Yen Strong, USD/JPY Nears August Lows
The Japanese yen was among the best performing currencies in Asia, with the pair down 0.4% on Monday. The pair is also nearing lows hit in early August, as a hawkish Bank of Japan, increased safe-haven demand and a pullback in the carry trade have put the currency at its strongest levels since early January.
But the strength of the yen somewhat undermined the move towards risk in Asian markets, as it also provided further relief to the carry trade that had fuelled strong capital flows into Asian markets.
The yen is likely to see further strength this year, especially with the possibility of lower interest rates in the US and the possibility of a rate hike by the Bank of Japan.
The exhibition, which will be held next Friday, is expected to provide more indications.
Broader Asian currencies were mixed. The Chinese yuan fell slightly after the People’s Bank of China kept its medium-term lending rate unchanged and pulled out about 101 billion yuan of liquidity through easing.
The Australian dollar pair fell 0.2%, retreating after strong gains over the past week.
The South Korean won rose 0.2%, while the Indian rupee was steady after breaking record highs on Friday.