Investing.com– Most Asian currencies rose on Wednesday, while the dollar fell as markets braced for a widely expected interest rate cut by the Federal Reserve later in the day.

Bank holidays in Hong Kong and South Korean markets curbed overall volumes, while the Chinese yuan weakened as onshore trading resumed after an extended hiatus.

The Japanese yen was the best performer in Asia, rebounding sharply from several overnight losses against the U.S. dollar. The yen remained in sight of the 2024 highs reached earlier this week, with a Bank of Japan meeting scheduled for later this week.

Dollar muted, Fed rate cut in focus

Both currencies fell 0.1% in Asian trading before the end of the two-day session.

The U.S. dollar strengthened on Tuesday after the release of better-than-expected data, although it still recorded most of its recent losses.

The dollar came under pressure primarily on expectations that the Federal Reserve will deliver its first interest rate cut in more than four years on Wednesday, likely signaling the start of an easing cycle that could see rates fall by at least 100 basis points by the end of 2024.

But markets were somewhat divided on how much the Fed would cut rates, with traders pricing in a 64% chance of a 50 basis point cut and a 36% chance of a 25 basis point cut, it showed.

Recent signs of resilience in the U.S. economy — as seen in sturdy retail sales and inflation data — could give the Fed less impetus to cut rates sharply. On the other hand, recent signs of weakness in the labor market could prompt the Fed to implement deeper cuts.

Still, the prospect of lower interest rates bodes well for high-yielding, high-risk currencies in Asia and is likely to spur capital flows into the sector in the coming months.

Japanese Yen Strong, BOJ in Focus

The Japanese yen was the top performer in Asian trading, reversing losses seen on Tuesday. The pair fell 0.7% to 141.36 yen, remaining within sight of a more than nine-month low hit earlier this week.

The yen strengthened on expectations that the BoJ will adopt a hawkish stance when , although analysts are unsure whether it will raise rates again.

Still, several Bank of Japan officials have signaled plans to further raise interest rates in tandem with higher inflation.

The Japanese language is also scheduled to arrive on Friday.

Broader Asian currencies drifted higher ahead of the Fed’s decision. The Australian dollar rose 0.1%, while the Singapore dollar fell 0.2%.

The Chinese yuan rose 0.1% as onshore trading resumed after a long weekend. Sentiment toward China was boosted by a series of faint economic data for August.

The Indian rupee was trading at around 83,773 rupees, down further from a record high reached in early September.