Forex
Asia FX advances, dollar little enthused by hot CPI data
Investing.com– Most Asian currencies firmed slightly on Friday, while the dollar fell from near two-month highs even as hot consumer inflation data furthered bets on a smaller interest rate cut by the Federal Reserve.
But most regional currencies were nursing losses in recent sessions as recent U.S. data pointed to interest rates remaining relatively higher for longer.
The South Korean won firmed even as the Bank of Korea cut interest rates and flagged more potential reductions, while the Chinese yuan rose with focus squarely on more fiscal stimulus measures from Beijing.
Dollar muted as markets weigh hot CPI, high jobless claims
The and fell 1% each in Asian trade, retreating from a one-month high hit in overnight trade.
While the dollar initially rallied on a stronger-than-expected inflation reading for September, it tapered its gains after labor data showed a bigger-than-expected increase in weekly jobless claims.
Traders still maintained bets that the Fed will cut interest rates by 25 basis points in November, with showing a 81.3% chance.
But signs of weakness in the labor market are likely to push the Fed into reducing rates consistently in the medium-term, even as inflation remains relatively elevated.
inflation data is due later on Friday and is expected to offer more cues on the world’s biggest economy.
Chinese yuan firm with fiscal stimulus in sight
The Chinese yuan firmed slightly, with the pair falling 0.1%.
Focus was squarely on an upcoming finance ministry briefing, where the government said it will outline plans for fiscal stimulus.
Analysts expect Beijing to outline at least 2 trillion yuan ($283 billion) of fiscal support, with a bulk of the amount being targeted at supporting private consumption.
Saturday’s briefing comes after a briefing on recent monetary stimulus measures largely underwhelmed. Investors also remained doubtful over China’s capacity for more fiscal measures, given the country’s stretched debt levels.
South Korean won firms past BOK rate cut
The South Korean won firmed on Friday, with the pair falling 0.2%.
Strength in the won came even as the BOK by 25 basis points to 3.25%- its first rate cut in over four years.
The central bank left the door open for more easing, as the Korean economy grapples with sluggish growth and cooling inflation.
Broader Asian currencies tread water and were mostly nursing weekly losses, as the dollar headed for a weekly gain.
The Japanese yen’s pair steadied at 148.71 yen, after coming close to 150 yen earlier in the week.
The Australian dollar’s pair added 0.2% after losing ground earlier in the week.
The Indian rupee’s pair remained close to record highs hit above 84 rupees.
Investing.com – The US dollar has gained strongly since the US presidential election in November, but these gains are unlikely to limit the hit that US customers are likely to face from tariffs, according to UBS.
At 08:25 ET (13:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 108.950, but was around 1.5% higher over the last month, and remained not far from the more than two-year high seen last week.
The theory is that a stronger dollar lowers US import prices, said analysts at UBS, in a note dated Jan. 17. Those lower prices would partially offset the tax payments US consumers must make to the US Treasury when buying imports.
If the US paid for the Chinese imports, then a stronger dollar would automatically reduce the amount of dollars paid (fewer dollars are exchanged to pay the renminbi price). However, the US pays for practically all its imports in dollars, so this does not happen.
If the dollar strengthens, the dollar price is unchanged, unless the exporter consciously chooses to lower the dollar price of the goods sold, UBS added.
An exporter to the US might deliberately lower dollar prices, as (in dollar terms) local currency costs are lower. But local currency costs are only a fraction of a manufacturer’s costs.
“A Chinese electronics manufacturer, importing chips (bought in dollars) and exporting computers to the US (in dollars), will probably keep their dollar prices stable—ignoring currency moves,” UBS added.
The US dollar strengthened against China’s renminbi in 2016 and 2018/19, and US import price inflation for products from China showed no noticeable break with earlier trends.
The preference seems to have been to reroute supply chains as a way of avoiding trade taxes.
Investing.com – The US dollar slumped Monday following a report that indicated that President-elect Donald Trump was set to delay imposing trade tariffs immediately upon his inauguration, an expectation which had boosted the US currency following his November election victory.
At 09:20 ET (14:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 1.1% lower to 108.020, having climbed to a more than two-year high last week.
The Wall Street Journal reported Monday that Trump is planning to issue a broad memorandum on his inauguration that directs federal agencies to study trade policies and evaluate US trade relationships with China and America’s continental neighbors—but stops short of imposing new tariffs on his first day in office.
The memo, which the WSJ has seen, suggests that debates are still ongoing within the incoming administration over how to deliver on Trump’s campaign trail promises for hefty tariffs on imports from trade rivals such as China.
The dollar has gained around 4% since the November presidential election as traders anticipated Trump’s policies will be inflationary, necessitating higher interest rates for a longer period.
“Financial markets are on tenterhooks to see what executive orders newly elected US President Donald Trump will enact on his first day,” said analysts at ING, in a note.
“FX markets are most interested in what he has to say about tariffs and what kind of pain the Oval Office plans to inflict on major trade partners.”
Bank of America (BofA) noted a significant increase in repo rates during the week of January 13 due to heightened liquidity demand triggered by tax payments and limited funding provided by the People’s Bank of China (PBoC).
The liquidity squeeze was most noticeable on January 16, the day following the tax payment deadline, with DR007 and R007 reaching 2.34% and 4.19%, respectively.
The PBoC maintained its stance on defending the exchange rate stability, resulting in the tightness of (RMB) liquidity being felt in the offshore market as well.
On January 9, the central bank announced it would issue RMB60 billion of 6-month bills in Hong Kong, a significant increase compared to previous issuances. The coupon rate of 3.4% was notably higher than the December issuance, reflecting the tightness of CNH liquidity and subdued demand from investors.
The December FX settlement balance by banks’ clients fell further to a deficit of US$10.5 billion, the first deficit reading since July 2024. A key change from the previous month was a sharp increase in USD demand for service trade. Reports also suggest that domestic importers have been actively purchasing USD via FX forward to hedge against tariffs risk in recent weeks, which has been exerting upward pressure on forward points.
On January 13, the PBoC increased the cross-border macroprudential parameter to 1.75 from 1.50. This move allows domestic corporations and Financial Institutions (FIs) to conduct more cross-border borrowing.
Given the widened interest rate gap between China and overseas, BofA believes this is more of a symbolic move by the PBoC to anchor market’s expectation on FX.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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