Investing.com– Most Asian currencies were trading in a steady or frail range on Thursday, with the dollar gaining broadly after the Federal Reserve’s excessive rate cut was offset by less dovish signals on future interest rates.

The Japanese yen was one of the worst-performing currencies on the day, falling on pressure from the dollar and as investors priced in no change to interest rates by the Bank of Japan later in the week.

Asian currencies fell in response to mixed signals from the Federal Reserve.

Dollar rises above 50 basis point rate cut, Fed outlook less dovish

Both stocks and currencies rose around 0.4% in Asian trade, extending gains overnight.

The dollar strengthened even though the Fed – at the higher end of market expectations – fluctuated between 4.75% and 5%.

Federal Reserve Chairman Jerome Powell said the risks of higher inflation and a weakening labor market are now balanced and that the central bank will likely cut interest rates amid growing confidence that inflation will decline.

However, Powell said the bank has no intention of returning to a regime of ultra-low interest rates such as during the pandemic, and the Fed’s neutral interest rate will now be much higher than in the past.

Although investors were still expecting at least 125 basis points of rate cuts by the end of 2024, Powell’s comments raised expectations that rates will be higher than originally expected in the medium to long term.

This concept has put pressure on most Asian currencies.

Japanese Yen Weakens Due to BOJ

The Japanese yen rose 0.6% to 143.12 yen and was among the worst-performing currencies in Asia.

The currency came under pressure from the strength of the dollar, with investors expecting local interest rates to remain unchanged following Friday’s summit.

The central bank is widely expected to keep interest rates unchanged but could still signal future rate hikes amid heightened inflation prospects. Japan is also due to meet on Friday.

Broader Asian currencies were mostly mixed. The Australian dollar rose 0.4%, helped by a stronger-than-expected reading in August.

The robust jobs market gives the Reserve Bank of Australia more room to keep interest rates high for longer, something it is more likely to do given signs of high inflation at home.

The Chinese yuan pair reversed early gains and is trading sideways, with attention focused on the People’s Bank of China’s decision on Friday. The central bank is expected to leave the LPR unchanged.

The South Korean won rose 1% as local trading resumed after a three-day holiday. The country contracted slightly in August.

The Indian rupee pair was flat but moved away from the 84-rupee level. The Singapore dollar pair was flat.