Investing.com: Most Asian currencies were flat on Monday, while the dollar steadied after falling from more than two-year highs after frail U.S. inflation data raised hopes that interest rates would continue to fall in 2025.

Asian currencies recorded immense losses against the dollar compared to last week, although they recovered some losses on Friday after pliable inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policies under fresh President Donald Trump.

Dollar falls from two-year high as PCE data falls compact of expectations

Both indexes stabilized on Monday after edged losses on Friday.

The dollar fell from a more than two-year high after the data – the Federal Reserve’s preferred measure of inflation – came in worse than expected on Friday.

Still, the reading remained above the Fed’s annual target of 2%, keeping interest rates uncertain.

The Fed cut interest rates by 25 basis points last week but signaled a slower pace of rate cuts in the coming year, citing concerns about persistent inflation and labor market resilience.

The Fed is expected to cut interest rates twice in 2025, although the path of interest rates remains uncertain.

Markets breathed a sigh of relief with the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill.

Asia FX under pressure from interest rate uncertainty

Despite posting some gains on Friday, most Asian currencies continued to decline in December as the interest rate outlook remained uncertain.

The Japanese yen pair rose 0.1% to around 156.59 yen, after rising as high as 158 yen last week on dovish signals from the Bank of Japan.

The BOJ has signaled that it is not considering raising interest rates in the near future despite the recent rise in inflation, and may not raise rates until March 2025.

The Chinese yuan pair rose 0.1% to a one-year high as investors remained concerned about China’s economic prospects. While Beijing is expected to escalate fiscal spending in the coming year to support the economy, looser monetary conditions will weaken the yuan.

The Singapore dollar pair was unchanged ahead of the release of inflation data later in the day, while the South Korean won rose 0.3%.

The Australian dollar pair rose slightly after falling to a two-year low last week.

The Indian rupee pair has strengthened after touching a record high of over Rs 85 last week.