© Reuters.
Investing.com – Most Asian currencies rallied on Thursday, while the dollar extended sharp losses overnight as a warning about economic growth and a possible banking crisis spurred mounting bets for the Federal Reserve to raise interest rates.
While the Fed was as expected on Wednesday, Chairman Jerome Powell’s comments provided a less hawkish view on monetary policy, with the bank now adopting a more data-driven approach to raising interest rates.
Powell also warned that economic growth in the US is slowing and that US banks are poised for tougher credit conditions.
The dollar fell after the Fed’s decision, extending its losses through Thursday. They fell nearly 0.3% each, and were near their lowest levels this year.
Treasury yields also fell as Federal Reserve Fund futures prices showed that markets were pricing in a 92% chance that the Fed will keep interest rates steady in June, according to the .
Asian currencies recovered some losses on this notion, rising 0.1%. The currency was also boosted by the growing demand for safe havens as markets were concerned about deteriorating economic conditions this year.
The interest rate-sensitive index was the best performer of the day, rising 0.9% as it recovered from a five-month low, while it rose 0.4% as the data indicated more room for the economy to continue raising interest rates.
It added 0.2% as trading resumed after the “Golden Week” holiday. Recent data showed that consumer spending and travel demand jumped during the holiday after most anti-COVID measures were lifted earlier this year.
But other data reinforced the notion of an uneven economic recovery in China. The A on Thursday showed that Chinese manufacturing activity contracted unexpectedly in April, as the post-COVID recovery dried up.
Broader Asian currencies also rose on Thursday. It added 0.1%, while it led the gains across Southeast Asia, up 0.3%.
But while a possible pause in the Fed’s rate hike cycle bodes well for regional currencies, any significant upside is likely to be suppressed by deteriorating economic conditions around the world.
Fears of a recession are likely to keep traders wary of any risk-driven assets, while also driving capital toward safe havens such as gold.
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