Investing.com– Most Asian currencies were little changed on Monday in holiday trading, with the dollar trading slightly lower as markets awaited a Federal Reserve meeting at which the central bank is likely to cut interest rates.

Regional trading volumes were muted due to market holidays in Japan, China and South Korea. But the Japanese yen strengthened sharply to an eight-month high, with the Bank of Japan meeting this week.

Dollar Down Amid Speculations of Fed Interest Rate Cut

Both currencies fell 0.3% in Asian trade, extending a streak of recent losses as markets eye an interest rate cut this week.

The Federal Reserve cut interest rates slow in the year, even though markets are divided on how much the central bank will cut rates.

The data shows that investors are pricing in a 50% chance of a 50 basis point rate cut and a 50% chance of a 25 basis point cut.

However, despite uncertainty over the scale of the cut, the central bank is widely expected to begin an easing cycle at its September meeting, with analysts forecasting rate cuts of at least 100 basis points by the end of 2024.

Japanese Yen at Highest Level in Over 8 Months, Expected by BOJ

The Japanese yen was the best performer among Asian currencies, with the pair falling 0.6% to 140.04 yen — its lowest since early January. The pair briefly fell below 140 yen for the first time in 2023.

Part of the yen’s move was fueled by lower volumes in local markets. But investors also rushed into the yen ahead of Friday’s meeting, where the central bank is expected to outline a hawkish outlook for interest rates.

The Japanese index due out on Friday is also expected to be stronger, which in turn will give the Bank of Japan more incentive to raise interest rates.

The yen has been strengthening since last week following a series of hawkish comments from Bank of Japan officials announcing an interest rate hike.

Broader Asian currencies were little changed in holiday-light trade. The Australian dollar was an outlier, rising 0.4%. The pair is typically seen as a proxy for global risk appetite.

The Singapore dollar fell 0.2%, while the Indian rupee fell further below the 84-rupee level.

The Chinese yuan (offshore pair) fell slightly but fell below the 7.1 yuan level.