Asia FX dips, dollar steadies as Fed uncertainty mounts By Investing.com

by Ambar Warrick

Investing.com – Most Asian currencies were lower on Wednesday, while the dollar steadied slightly as uncertainty over higher US interest rates weighed on riskier assets, with focus now turning to a slew of economic indicators scheduled for this week.

It fell 0.2%, coming under renewed pressure from the dollar this week as Bank of Japan Governor Kazuo Ueda reiterated that the central bank will maintain its ultra-loose monetary policy.

Deteriorating domestic economic conditions also weighed on the Japanese yen, with focus shifting to the key on Friday.

Optimism over China’s economic recovery provided little support for regional currencies, with stronger-than-expected data also pointing to a lopsided recovery. The country’s manufacturing sector, considered a growth leader, is still struggling to recover from the COVID pandemic.

It was flat on Wednesday. The focus this week is also on the People’s Bank of China on Thursday.

Southeast Asian currencies also declined, dropping 0.3%, while losing 0.1%. This was somewhat supported by data showing that the country grew more than expected in March.

The broader Asian currencies fell on Wednesday as uncertainty about the path of US monetary policy kept traders cautious. Both rose slightly, also supported by a rebound in overnight Treasury yields.

Fears of higher US interest rates again crept into the markets as several Federal Reserve officials called for more increases. Show that markets are pricing in an 85% chance that the Fed will hike 25 basis points in May, as well as a 19% chance that the Fed will hike again in June.

While the general consensus remains to pause in June, Fed officials also warned that interest rates could remain high for longer, likely affecting economic growth. The prospect of an economic slowdown in the US, coupled with higher interest rates, has weighed heavily on Asian currencies this year.

Among other factors on Wednesday, it rose slightly as it showed that analysts see less likelihood of a recession, after the Reserve Bank paused interest rate hikes.

But the RBA is still signaling that further rate hikes may be on the cards, especially if inflation remains stubborn.