Investing.com: Most Asian currencies traded in a stable to low range on Friday, pressured by dollar strength as investors prepared for a slower pace of Federal Reserve interest rate cuts in 2025.

Regional trade volumes remained low due to the New Year holidays, and Japanese markets remained closed until next week.

China’s yuan was among the worst performing in Asia, hitting its weakest level in almost 16 months, as a Financial Times report said the People’s Bank of China will cut interest rates further in 2025.

The yuan, like its peers in the region, also posted bulky losses in 2024 as the dollar benefited from the Fed’s hawkish policies and the prospect of protectionist policies under fresh President Donald Trump.

Dollar at 2-year high as bets on interest rate cuts fade

The i fell 0.1% in Asian trading after hitting a fresh two-year high on Thursday.

The dollar’s latest round of gains came after weekly data was stronger than expected, indicating the labor market remained robust. A robust labor market gives the Fed greater latitude in considering future monetary easing.

The central bank signaled at its December meeting that it would cut interest rates at a much slower pace in 2025, citing concerns about persistent inflation.

The resilience of the U.S. economy also gives the Fed less impetus to cut interest rates, even though the Atlanta Fed’s interest rate was revised downward for the fourth quarter on Thursday.

The Chinese yuan is weakening as the PBOC continues to cut interest rates

China’s yuan was among the worst performing in Asia, rising almost 0.4% to 7.3275 yuan, its highest level since September 2023.

The FT reported that the PBOC will make further interest rate cuts in 2025 as the central bank moves to a more conventional monetary policy structure under a single benchmark interest rate.

The monetary policy reform comes after a series of liquidity measures were introduced over the past two years that largely failed to stimulate China’s economy. This is expected to result in further monetary easing by the Bank of China, which bodes poorly for the yuan.

The yuan has already pared losses this week as previously released purchasing managers’ index data showed slowing growth in China’s manufacturing sector.

Broader Asian currencies traded in a narrow range but posted bulky losses in recent months as investors braced for a slower pace of U.S. interest rate cuts in 2025.

The Japanese yen pair fell 0.1% after hitting its highest level in more than five months in overdue December.

The Australian dollar pair rose 0.2% while the South Korean won pair fell 0.2% on repeated government assurances of financial stability.

The Indian rupee pair held steady at Rs 85.8 after touching a record high above Rs 86 earlier in the week.