Most Asian currencies rose on Thursday as growing expectations of a Federal Reserve interest rate cut weighed on the dollar, while a fragile yen kept traders wary of possible government intervention.
But gains in Asian currencies were capped by hawkish signals from the minutes of the Federal Reserve’s June meeting, while key jobs data on Friday also kept sentiment cautious.
Japanese Yen Gains Some Strength, But Intervention Fears Remain
The Japanese yen got some respite from the dollar’s weakness, with the pair down 0.2% after breaching around the 162 level on Wednesday.
The pair was trading above the 160 level – the level that last attracted government intervention in May. With Japanese officials reiterating their commitment to defending the yen, traders remained on alert for any possible intervention in the coming days.
Traders expected the government to take advantage of low trading volumes during the July Fourth holiday in the United States to intervene. The government intervention in May occurred during the Japanese market holiday.
Dollar falls on weak labor data, rate cut bets rise
Gold and foreign exchange prices fell about 0.1% in Asian trading on Thursday, extending a sharp decline seen overnight.
Weaker-than-expected data and a weak PMI reading have increased bets on a slowing U.S. economy, which traders are betting will prompt the Federal Reserve to cut interest rates sooner.
Weak employment data also boosted bets for a weak reading on Friday.
Traders increased their bets that the Federal Reserve will cut interest rates by 25 basis points in September. The data showed traders now see a 66% chance of a rate cut in September, up from 59% a day earlier.
However, the results of the Fed’s June meeting showed that policymakers are still not convinced that inflation will fall enough to make cutting interest rates viable. Some officials still see the need to raise interest rates to bring down inflation.
Several Federal Reserve officials, most notably Chairman Jerome Powell, have also warned this week that while the bank has made some progress toward combating inflation, it still lacks the confidence to start cutting interest rates.
However, most Asian currencies rose against the weaker dollar. The Australian dollar rose 0.2% even as data showed the country’s trade balance contracted more than expected in May, due to weak exports.
The Chinese yuan pair steadied, remaining close to its highest levels in seven months amid declining confidence in the Chinese economy.
The South Korean won fell 0.4%, while the Singapore dollar fell 0.1%.
The Indian Rupee pair stabilized after approaching record highs this week.
