Most Asian currencies rose on Friday, while the dollar suffered losses after the Federal Reserve cut interest rates by a wide margin and began an easing cycle.
The Japanese yen was among the best performing currencies, rising after the Bank of Japan kept interest rates on hold and said it expected steady increases in inflation and economic growth.
The Chinese yuan also rose after the People’s Bank of China kept its benchmark interest rates unchanged, brushing aside some expectations that it would cut rates further to support the economy.
Yen rises as BOJ insists on keeping rates, points to rising inflation
The Japanese yen rose on Friday, with the pair down 0.2% to 142.28 yen.
The Bank of Japan issued a unanimous decision, saying it expects inflation and economic growth to rise steadily.
Although the central bank did not give any explicitly hawkish signals, its inflation forecast was tied to expectations that the Bank of Japan would raise interest rates further. A number of policymakers have indicated that interest rates will rise further in the coming months, especially with inflation rising.
The Bank of Japan’s decision and forecast came just hours after data showed inflation rose to a 10-month high in August, as higher wages pushed private consumption higher.
Although the yen suffered weekly losses, it remained close to its strongest levels for 2024, which it hit earlier in the week. Expectations of higher interest rates are likely to support the yen in the coming months.
Dollar Weak After Rate Cut Despite Less Dovish Fed Signals
Gold and currencies fell slightly in Asian trading, extending overnight declines as markets looked ahead to a U.S. interest rate cut.
The US Federal Reserve announced the start of a monetary policy easing cycle, which could lead to a 125 basis point cut in interest rates by the end of the year.
But Federal Reserve Chairman Jerome Powell offered a less dovish view on medium- and long-term interest rates, suggesting the central bank’s neutral rate would be much higher than in the past. His comments helped limit the dollar’s overall losses, and the greenback also rose in the wake of the Fed’s decision on Wednesday.
Chinese yuan hits 16-month high as PBOC holds rates
The Chinese yuan rose on Friday, with the pair falling 0.3% to its lowest level since May 2023.
The yuan’s strength came as the People’s Bank of China kept its key interest rate steady, brushing aside some expectations that it would cut rates further to stimulate the economy.
The People’s Bank of China’s decision comes as a series of recent economic indicators have shown continued weakness in China.
But media reports said the People’s Bank of China had instructed local banks to buy dollars and limit the overall strength of the yuan, as the yuan’s strength also affects Chinese exports.
Broader Asian currencies rose after the Fed’s decision, with the Australian dollar up 0.2% to near an eight-month high.
The South Korean won rose 0.2%, while the Singapore dollar fell 0.1%.
The Indian rupee pair fell 0.1%, retreating further from record highs hit earlier this year.