Investing.com — Most Asian currencies fell slightly on Wednesday as the dollar recovered from two-month lows, while the Indian rupee tested record lows after 2024 general election results showed the ruling Bharatiya Janata Party did not sweep as expected.
Broader risk appetite improved somewhat, as weak US data fueled bets that the Federal Reserve will eventually start cutting interest rates. But traders were wary of accumulating risk-driven assets in anticipation of further signs on US interest rates this week.
Both indexes rose 0.1% after falling to their lowest levels in two months earlier. The weak data increased traders' bets that the Federal Reserve will start cutting interest rates in September.
But the focus this week was squarely on data on definitive signals in the labor market.
Indian rupee is volatile, US dollar rises on election shock
The Indian rupee pair, which represents the number of rupees needed to buy one dollar, rose to a record high of 85 on Wednesday, before sharply limiting its gains amid some notable intervention by the Reserve Bank of India.
The volatility in the rupee, and broader Indian markets, came after the results of the 2024 general elections showed that the ruling Bharatiya Janata Party did not achieve a sweep as expected. Instead, the party lost a large number of seats to the opposition Indian National Congress.
While Prime Minister Narendra Modi is still poised for a third term, on the back of the NDA alliance, the BJP's weaker majority poses difficulties for Modi in enacting further economic reforms.
Japanese yen weakens, but wage data heralds strength
The Japanese yen pair rose 0.4% on Wednesday after falling to its lowest level in more than three weeks during overnight trading.
But the currency was poised for further strength in the near term, especially after positive wage growth data for April.
It grew by 2.1%, as did employees, with both indicators reflecting wage increases won by Japan's major labor unions earlier this year.
Wage strength is linked to a tighter outlook for the Bank of Japan. The Bank of Japan is expected to ease some of its asset purchasing policies at the 0.000 level, which bodes well for the yen.
Broader Asian currencies recorded small moves. The Australian dollar pair rose 0.2%, despite data showing that the economy grew less than expected in the first quarter.
But Reserve Bank of Australia Governor Michael Bullock warned that interest rates could rise if inflation remains steady.
The Chinese yuan rose 0.1%, although private PMI data showed growth in the country more than expected.
The South Korean won pair fell by 0.2%, while the Singapore dollar pair saw water.