Most Asian currencies fell on Thursday as the dollar rose from seven-month lows amid some cheap buying, although traders remained largely biased against the greenback amid expectations of interest rate cuts.
The Japanese yen retreated after posting strong gains this week, although sentiment towards Japan was supported by positive PMI data.
Broader Asian currencies also posted some gains this week amid growing conviction that the Federal Reserve will start cutting interest rates from September. But weak labor market data on Wednesday has somewhat destabilized risk sentiment, with fears of a U.S. recession returning to the forefront.
Dollar recovers from 7-month low; rate cuts, recession in focus
The dollar and the euro rose 0.2% in Asian trading, after three days of sharp losses that pushed the dollar to its lowest levels in seven months.
The dollar’s weakness came amid growing bets on a September rate cut, with the results of the Federal Reserve’s late July meeting, released on Wednesday, showing most policymakers were in favor of cutting rates.
A sharp downward revision to U.S. payrolls data for the year through March 2024 bolstered the case for a rate cut. But the revision also raised renewed concerns that a slowing labor market is signaling a U.S. recession, especially since payrolls data in recent months has also been weak.
Attention now turns to Trump’s speech at the Jackson Hole Symposium on Friday for further clues on the economy.
Japanese Yen Steady as PMI Points to Services Sector Growth
The Japanese yen fell slightly on Thursday, but held onto most of its gains this week as bets on a rate hike by the Bank of Japan increased on economic data. The pair remained hovering around the 145 yen level.
Japan’s economy posted steady growth for a second straight month, purchasing managers’ index (PMI) data showed, helping offset a contraction in .
The improvement in domestic demand was also driven by strength in the services sector, as private consumption rebounded amid rising wages. This in turn raised inflation expectations – which could prompt the Bank of Japan to raise interest rates further.
Japan is due to release its financial data on Friday and is expected to provide more clues about the economy.
Broader Asian currencies fell as markets weighed the possibility of a U.S. recession against interest rate cuts.
The Chinese yuan was steady, while the South Korean won rose 0.2% after the central bank kept interest rates unchanged and signaled the possibility of a rate cut later this year.
The Australian dollar fell 0.1%, slowing after its recent rise, while the Singapore dollar rose 0.1%.
The Indian Rupee pair rose slightly and remained near a record high.