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Asia FX surges as dollar nears 4-mth low on dovish Fed

Published 2023-12-13, 11:36 p/m
© Reuters
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Investing.com-- Most Asian currencies rose sharply on Thursday, while the dollar came close to a four-month low after the Federal Reserve signaled it was done raising interest rates and will begin trimming borrowing costs in 2024.

The central bank kept interest rates on hold as widely expected, and said it could potentially cut rates by a bigger-than-expected margin in 2024. Fed Chair Jerome Powell also flagged an acceptable amount of progress against inflation.

His comments triggered steep losses in the dollar, with the dollar index and dollar index futures falling 0.3% each in Asian trade. Both instruments were close to their weakest levels since August, at around mid-to-low 102.

Powell’s comments also triggered speculation over when the Fed will begin trimming rates. Fed fund futures show traders pricing in an over 70% chance for a 25 basis point rate cut in March 2024.

Most Asian currencies shot up in the dollar’s wake, as the prospect of lower U.S. ramped up the appeal of risk-heavy, high-yielding assets. U.S. Treasury yields also slid after Wednesday's meeting.

The Japanese yen surged 1% on Thursday to an over four-month high against the dollar. Markets were now awaiting a Bank of Japan meeting next week for more cues on monetary policy, although the BOJ is widely expected to maintain its ultra-dovish messaging.

The Australian dollar rose 0.8% as data showed continued resilience in the labor force, although increased unemployment indicated some cooling after a strong run over the past year.

Risk-heavy Asian currencies also saw outsized gains. The South Korean won added 1%, while the Philippine peso led gains in Southeast Asia with a 1% bounce.

The Indian rupee was among the few outliers for the day, remaining close to record lows as India’s record-high trade deficit diminished its appeal.

Chinese yuan rises, but gains testy amid economic jitters

The Chinese yuan rose 0.6% and traded close to a four-month high, although further gains in the currency were held back by persistent concerns over the Chinese economy. Markets were now awaiting more economic cues on China from industrial production and retail sales data due on Friday, after a string of disappointing readings for November.

After weak inflation data earlier this week, readings on Wednesday showed persistent weakness in lending activity and local liquidity levels.

The readings spurred more calls for stimulus measures from Beijing, although the government has remained largely conservative in rolling out more fiscal support.

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