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

Market holidays in Hong Kong and South Korea limited overall volumes, while the Chinese yuan weakened as onshore trade resumed after an extended break. 

The Japanese yen was the best performer in Asia as it rebounded sharply from some overnight losses against the greenback. The yen remained in sight of 2024 peaks hit earlier this week, with a Bank of Japan meeting on tap later this week.

Dollar muted, Fed rate cut in focus 

The and both fell 0.1% each in Asian trade before the conclusion of a two-day later in the day.

The greenback found some strength on Tuesday after stronger-than-expected data, although it still retained most of its recent losses.

The dollar was pressured chiefly by expectations that the Fed will enact its first interest rate cut in over 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 split over just by how much the Fed will cut rates. Traders were seen pricing in a 64% chance for a 50 basis point cut and a 36% chance for a 25 bps cut, showed.

Recent signs of resilience in the U.S. economy- as seen with strong retail sales and inflation data- could give the Fed less impetus to cut rates sharply. But on the other hand, recent signs of weakness in the labor market could push the Fed into enacting deeper cuts.

Still, the prospect of lower 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 best performer in Asian trade, as it recovered from losses logged on Tuesday. The pair fell 0.7% to 141.36 yen, remaining in sight of an over nine-month low hit earlier this week. 

The yen was buoyed by expectations that the BOJ will strike a hawkish note when it , although analysts are uncertain whether it will hike interest rates again.

Still, a slew of BOJ officials signaled plans to raise rates further in tandem with higher inflation.

Japanese is also due on Friday. 

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

The Chinese yuan’s pair rose 0.1% as onshore trade resumed after a long weekend, with sentiment towards China pressured by a string of weak economic readings for August. 

The Indian rupee’s pair hovered around 83.773 rupees, having pulled back further from record highs hit earlier in September. 

By Chibuike Oguh

NEW YORK (Reuters) -The U.S. dollar strengthened against most major currencies on Tuesday following better-than-expected retail sales data that seemed to support a less aggressive stance by the Federal Reserve, which is widely expected to deliver its first interest rate cut in more than four years.

Commerce Department data showed on Tuesday that U.S. retail sales unexpectedly rose 0.1% in August, suggesting that the economy remained on solid footing through much of the third quarter.

The Fed’s Federal Open Market Committee will give its interest rate decision at the conclusion of its meeting on Wednesday after which Chair Jerome Powell will hold a press conference. The last Fed rate cut was in March 2020 during the COVID-19 pandemic.

“I think like all the markets at this point are hostage to this FOMC meeting tomorrow,” said Marvin Loh, senior global market strategist at State Street (NYSE:) in Boston.

“Retail sales were okay. It certainly doesn’t show that there should be an imminent rush to have supersized cuts and it would be somewhat unprecedented for the Fed to really panic in rate cuts given where the market is at this point.”

Against the yen, the dollar rose 0.87% to 141.830 after initially weakening following the retail sales data.

The euro was down 0.10% to $1.112125, not far from the year’s high of $1.1201. Against the Swiss franc, the dollar was up 0.15% to 0.8460.

The , which measures the greenback against a basket of currencies including the yen and the euro, gained 0.199% at 100.90.

Fed funds futures show the chance of a 50 basis point rate cut stood at 63%, against 30% a week ago, while the chances of a 25 basis point cut was at 37%. The odds have narrowed sharply after media reports revived the prospect of a more aggressive easing.

Other economic data on Wednesday appeared to provide support for the Fed to be less aggressive in cutting rates. U.S. business inventories, a key component of gross domestic product, posted a better-than-expected gain of 0.3% in July while factory output rebounded in August.

“Overall, the market is pricing in numerous rate cuts over the next several months and there are those voices that suggest that maybe the market has gotten ahead of itself,” said Axel Merk, president and chief investment officer at Merk Investments in Pal Alto, California.

The Bank of Japan is expected to keep policy steady on Friday but signal that further interest rate hikes are coming, perhaps turning the next meeting in October into a live one.

The Bank of England is also expected to retain interest rates at 5% when it meets on Thursday, although markets have priced in a nearly 36% chance of another cut.

Sterling – the best performing G10 currency this year with a 3.41% rise on the dollar – has risen thanks to signs of resilience in Britain’s economy and stickiness in inflation. It was last down 0.37% at $1.31665.

Chinese markets are closed for the Mid-Autumn Festival break until Wednesday, though the yuan was up 0.16% at 7.1090 in offshore trade.

The Canadian dollar was up 0.04% at $1.35935. The Australian and New Zealand dollars bought $0.67595 and $0.61900 respectively.

In cryptocurrencies, bitcoin gained 5.00% to $60,544.00. rose 3.29% to $2,349.00.

Currency bid prices at 17              

September​ 06:54 p.m. GMT

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid

Dollar index 100.91 100.7 0.21% -0.45% 101 100.56

Euro/Dollar 1.1121 1.1133 -0.11% 0.75% $1.1146 $1.1111

Dollar/Yen 141.87 140.59 0.91% 0.59% 141.93 140.36

Euro/Yen 1.1121​ 156.53 0.79% 1.38% 157.87 156.06

Dollar/Swiss 0.8461 0.8449 0.15% 0.53% 0.8478 0.843

Sterling/Dollar 1.3163 1.3216 -0.4% 3.44% $1.3229 $1.3147​

Dollar/Canadian 1.3593 1.3587 0.06% 2.55% 1.3617 1.3581

Aussie/Dollar 0.6756 0.6752 0.07% -0.9% $0.6769 $0.6742

Euro/Swiss 0.9409 0.9403 0.06% 1.32% 0.9422 0.9383

Euro/Sterling 0.8447 0.8423 0.28% -2.55% 0.8454 0.8419

NZ Dollar/Dollar 0.6186 0.6201 -0.21% -2.07% $0.6211 0.6179

Dollar/Norway 10.5965​ 10.5865 0.09% 4.55% 10.623 10.5601

Euro/Norway 11.7859 11.786 0% 5.01% 11.8099 11.7553

Dollar/Sweden 10.1823 10.1687 0.13% 1.15% 10.2075 10.1504

Euro/Sweden 11.3252 11.322 0.03% 1.8% 11.3465 11.306