Forex
Asia FX slips, dollar steady on rate uncertainty; S.Korean won slides on BOK cut
Investing.com– Most Asian currencies edged lower on Thursday as the dollar steadied amid growing uncertainty over the path of U.S. interest rates, while the South Korean won fell sharply after the country’s central bank unexpectedly cut interest rates.
Investors refrained from placing major bets before the U.S. Thanksgiving holiday, which is likely to keep trading thin for the rest of the week.
The dollar steadied after clocking sharp overnight losses, although it still remained in sight of recent two-year peaks. Overnight data showed that – Federal Reserve’s preferred measure of underlying inflation- picked up in line with estimates. Another reading showed that the U.S. economy expanded at a solid pace in the third quarter.
The inability to achieve the Federal Reserve’s 2% inflation target, combined with the possibility of increased tariffs on imports, could limit the central bank’s ability to reduce interest rates next year.
The was last up 0.1%, while the also ticked 0.1% higher.
Currencies in regional markets have remained tepid for most of this week, after Monday’s threat from the U.S. President-elect Donald Trump to impose additional trade tariffs on China, which could spark a renewed trade war between the world’s biggest economies.
The Singapore dollar’s pair rose 0.3%, while the Thai baht’s pair was largely unchanged.
The Australian dollar’s pair rose 0.5%, a day after mixed , which showed headline inflation remained steady while underlying inflation rose in October.
The Japanese yen’s pair was also 0.4% higher, while the Indian rupee’s pair was largely muted, remaining close to recent record highs.
South Korean won sinks after BoK surprise rate cut
The Bank of Korea cut for a second straight meeting on Thursday in a surprise move, as it warned that economic growth was likely to slow further in the coming year.
The South Korean won weakened sharply, with the pair up 0.5% after the BoK’s decision.
The BoK cut its GDP forecast for 2025, and also saiod that inflation was likely to ease in the coming year.
Chinese yuan remains under pressure
The Chinese yuan remained under pressure, with the onshore yuan’s pair ticking slightly higher to 7.25 per U.S. dollar, and remaining near a four-month high.
Major investment banks and research firms project the to weaken to an average 7.51 per dollar through the end of 2025, according to CNBC calculations. That would mark the currency’s weakest level on record since 2004.
The yuan has remained weak following Donald Trump’s re-election and his renewed tariff threats, with plans for additional levies on Chinese imports, including rates as high as 60%.
The weakening yuan has broader implications for emerging Asian currencies. Trade-dependent currencies like the South Korean won, Thai baht, and Malaysian ringgit are under pressure due to their close economic ties with China and the ripple effects of U.S.-China trade tensions.
Investing.com – The US dollar rose in thin holiday-impacted trade Tuesday, retaining recent strength as traders prepared for fewer Federal Reserve rate cuts in 2025.
At 04:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.905, near the recently hit two-year high.
Dollar remains in demand
The dollar has been in demand since the Federal Reserve outlined a hawkish outlook for its interest rates after its last policy meeting of the year last week, projecting just two 25 bp rate cuts in 2025.
In fact, markets are now pricing in just about 35 basis points of easing for 2025, which has in turn sent US Treasury yields surging, boosting the dollar.
The two-year Treasury yield last stood at 4.34%, while the benchmark 10-year yield steadied near a seven-month high at 4.59%.
“We think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year,” said analysts at ING,in a note.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Euro near to two-year low
In Europe, fell 0.1% to 1.0396, near a two-year low, with the set to cut interest rates more rapidly than its US rival as the eurozone struggles to record any growth.
The ECB lowered its key rate earlier this month for the fourth time this year, and President Christine Lagarde said earlier this week that the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech in Vilnius.
Inflation in the eurozone was 2.3% last month and the ECB expects it to settle at its 2% target next year.
traded largely flat at 1.2531, with sterling showing signs of weakness after data showed that Britain’s economy failed to grow in the third quarter, and with Bank of England policymakers voting 6-3 to keep interest rates on hold last week, a more dovish split than expected.
Bank of Japan stance in focus
In Asia, fell 0.1% to 157.03, after rising as high as 158 yen in recent sessions, after the signaled that it will take its time to consider more interest rate hikes.
edged 0.1% higher to 7.3021, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
Investing.com– Most Asian currencies moved in a tight range on Tuesday, while the dollar extended overnight gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted before the Christmas break, while most regional currencies were nursing steep losses against the greenback for the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns over sticky U.S. inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back in sight of a two-year high hit last week.
While the greenback did see some weakness after data read lower than expected for November, this was largely offset by traders dialing back expectations for interest rate cuts in 2025.
The Fed signaled only two rate cuts in the coming year, less than prior forecasts of four.
Higher U.S. rates diminish the appeal of risk-driven Asian markets, limiting the amount of capital flowing into the region and pressuring regional markets.
Asia FX pressured by sticky US rate outlook
Most Asian currencies weakened in recent sessions on the prospect of slower rate cuts in the U.S., while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen’s pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled that it will take its time to consider more interest rate hikes.
The Australian dollar’s pair fell 0.2% after the minutes of the Reserve Bank’s December meeting showed policymakers saw an eventual easing in monetary policy, citing some progress in bringing down inflation. But they still flagged potential upside risks for inflation.
The Chinese yuan’s pair rose 0.1% and remained close to a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing signaled that it will ramp up fiscal spending in 2025 to support slowing economic growth.
The Singapore dollar’s pair rose 0.1%, while the Indian rupee’s pair rose 0.1% after hitting record highs above 85 rupees.
Investing.com — The dollar has surged past its post-2022 range, buoyed by U.S. economic exceptionalism, a widening interest rate gap, and elevated tariffs, setting the stage for further gains next year.
“Our base case is that the dollar will make some further headway next year as the US continues to outperform, the interest rate gap between the US and other G10 economies widens a little further, and the Trump administration brings in higher US tariffs,” Capital Economics said in a recent note.
The bullish outlook on the greenback comes in the wake of the dollar breaking above its post-2022 trading range, reflecting renewed confidence among investors driven by robust U.S. economic data and policy expectations.
A key risk to the upside call on the dollar is a potential economic rebound in the rest of the world, similar to what occurred in 2016, Capital Economics noted.
Following the 2016 U.S. election, economic activity in the rest of the world rebounded, while Trump’s tax cuts didn’t materialize until the end of 2017, and the Fed took a more dovish path than discounted, resulting in a 10% drop in the DXY on the year, which was its “worst calendar year performance in the past two decades,” it added.
While expectations for a recovery in Europe and Asia seem far off, a positive surprise for global growth “should be ruled out”, Capital Economics said.
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