Asia FX frail, dollar forceful amid expectations of a smaller interest rate cut in the US

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Investing.com – Most Asian currencies fell on Monday, with the Japanese yen posting weighty losses while the dollar steadied after a recent rebound as forceful labor market data sparked speculation of a smaller interest rate cut.

Regional trade volumes were hampered by the holiday in China, with markets scheduled to open on Tuesday.

Most Asian currencies posted significant losses from the previous week after better-than-expected U.S. nonfarm payrolls data dashed any hopes of further pointed interest rate cuts by the Federal Reserve, with markets now pricing in a smaller cut in November.

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The dollar is stabilizing thanks to bets on a smaller interest rate cut

Asian trade showed modest gains after forceful gains last week, especially Friday’s gains.

The reading dispelled fears of an economic slowdown in the US and reinforced the view that the Fed will not have to sharply cut interest rates to support the economy.

Traders had largely given up bets on another 50-basis-point cut in November and were pricing in a more than 90% chance of a 25-basis-point cut.

The focus this week is on speeches by many Fed officials, as well as the September Fed meeting. The Fed cut interest rates by 50 basis points during the meeting and announced the start of an interest rate easing cycle, although it still said that future rate cuts would be data-dependent.

September inflation data will also be released later this week and will likely be included in the Fed’s interest rate outlook. However, the prospect of smaller rate cuts creates a less favorable environment for Asian markets.

Japanese yen at the lowest level in 1.5 months, BOJ interest rate escalate questionable

Last week, the Japanese yen was the worst performer among its peers in the region, with the pair rising to its highest level since mid-August.

The yen was hit by growing doubts about the Bank of Japan’s ability to continue raising interest rates in the coming months, especially amid uncertainty over the upcoming Japanese general election.

The latest economic data also showed constrained strength in the Japanese economy, which in turn could give the BOJ less leeway to raise interest rates further.

Broader Asian currencies have been muted after recording significant losses last week. Still, overall losses in regional currencies were constrained by optimism about more stimulus measures in China. The country’s top economic planning adviser will hold a briefing on Tuesday to outline further economic support.

The Australian dollar pair rose 0.2%, while the South Korean won pair rose 0.1%.

The Singapore dollar pair was unchanged, as was the Indian rupee pair, although it remained close to record highs.

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