Most Asian currencies rose on Tuesday, while the dollar held at its lowest level in more than seven months amid growing conviction that the Federal Reserve will cut interest rates in September.
The dollar’s weakness comes just days before Federal Reserve Chairman Jerome Powell speaks at the Jackson Hole symposium on Friday, where he is expected to provide further signals on interest rate cuts.
A weaker U.S. dollar helped spur a strong rally in the Japanese yen on Monday, while the Chinese yuan weakened slightly after the People’s Bank of China left its key lending rate unchanged, as expected.
Dollar holds steady at 7-month low, Powell speech looms
Gold prices stabilized in Asian trading, after falling to their lowest levels since early January on Monday.
The dollar fell in tandem with a decline in US Treasury yields amid growing optimism that the Federal Reserve will cut interest rates in September.
Inflation data on Friday is expected to provide further clues on this front, although analysts do not expect the Fed chairman to definitively say when and by how much the central bank will cut rates.
Traders are pricing in a 25 basis point rate cut in September, according to .
Low interest rates are leading to more outflows of dollars, and are heralding some strength in Asian markets.
Japanese yen falls after sharp rebound
The Japanese yen retreated slightly on Tuesday after posting a strong rebound in the previous session. The pair rose 0.3% to 147.01 yen after falling to a low of 145 yen.
The yen’s strength came primarily from a weaker dollar, and economic readings from Japan suggested the Bank of Japan has more room to raise interest rates further this year.
Chinese yuan falls as PBOC keeps key lending rate
The Chinese yuan rose 0.1%, receiving a small boost from the People’s Bank of China’s decision to keep its benchmark interest rate unchanged as expected.
The rate hold in August comes after the People’s Bank of China unexpectedly cut its key interest rate in July, as it moves to further boost economic growth.
The People’s Bank of China is widely expected to cut interest rates further this year, amid growing concerns about China’s slowing economy. This trend is also expected to keep the yuan under pressure.
Broader Asian currencies moved in a flat-to-low range on Tuesday. The Australian dollar fell 0.2% even after minutes from the Federal Reserve’s August meeting showed the central bank had considered raising interest rates and was likely to keep them on hold for longer.
The Singapore dollar rose 0.2%, while the South Korean won rose 0.1%.
The Indian Rupee pair settled below record highs amid signs of continued market intervention by the Reserve Bank of India.