Most Asian currencies moved in a flat-to-low range on Thursday as the dollar rose sharply after a large interest rate cut by the Federal Reserve was offset by less dovish signals on future interest rates.
The Japanese yen was among the worst performing currencies on the day, falling amid pressure from the dollar and as traders did not price in any interest rate changes from the Bank of Japan later this week.
Broader Asian currencies fell on mixed signals from the Federal Reserve.
Dollar rises after 50bp rate cut, Fed outlook less pessimistic
Gold and silver prices rose about 0.4% in Asian trading, extending their gains overnight.
The dollar’s strength came even as the Federal Reserve – the upper end of market expectations – kept interest rates in a range of 4.75% to 5%.
Federal Reserve Chairman Jerome Powell said the risks between higher inflation and further labor market weakness are now balanced, and the central bank is likely to cut interest rates further amid growing confidence in low inflation.
But Powell also said the bank has no intention of returning to the ultra-low interest rate regime it used during the pandemic, and that the Fed’s neutral interest rate will now be much higher than we have seen in the past.
While traders were still expecting at least 125 basis points of rate cuts by the end of 2024, Powell’s comments raised expectations that interest rates will be higher than initially expected in the medium and long term.
This concept has influenced most Asian currencies.
Japanese yen falls as BOJ meeting approaches
The Japanese yen rose 0.6% to 143.12 yen, among the worst performers in Asia.
The local currency was under pressure due to the strength of the dollar, while traders are also awaiting any changes in local interest rates after Friday.
The central bank is widely expected to keep interest rates unchanged, but could signal future rate hikes amid rising inflation expectations. Japanese economic data is also due on Friday.
Broader Asian currencies were mostly mixed. The Australian dollar rose 0.4%, supported by a stronger-than-expected August reading.
The strength in the labour market gives the Reserve Bank of Australia more room to keep interest rates higher for longer, something it tends to do amid signs that inflation in the country is stabilising.
The Chinese Yuan pair pared early gains to trade sideways, with the focus squarely on the People’s Bank of China’s decision on Friday. The central bank is expected to leave the Lebanese pound exchange rate unchanged.
The South Korean won jumped 1% as local trading resumed after three days of holidays. The country’s economy contracted slightly in August.
The Indian Rupee pair remained stable, but moved further away from the Rs 84 level. The Singapore Dollar pair was stable.
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