Forex
Asia FX heads for weekly losses, dollar strong amid early rate-cut doubts
© Reuters.
Investing.com– Most Asian currencies moved little on Friday but were headed for weekly losses, while the dollar hovered near one-month highs amid increasing doubts that the Federal Reserve will cut interest rates early this year.
The was the worst hit by concerns over higher-for-longer rates, and was also the worst performer in Asia this week. The yen fell 0.1% on Friday and was set to lose 2.3% this week.
Data on Friday showed Japanese (CPI) inflation fell to its lowest since June 2022 in December, setting up the Bank of Japan to largely maintain its ultra-dovish policy when it .
Chinese yuan hit by economic jitters, but PBOC action limits losses
Broader Asian currencies were also dented by growing concerns over China, after the region’s largest economy grew less than expected in the . Growth for 2023 also a 5% government target.
Losses in the were limited by a series of strong midpoint fixes from the People’s Bank of China. The PBOC was also seen selling dollars on the open market to support the Chinese currency.
The yuan was set to lose 0.4% this week- its third straight week of declines. The currency sank to a near two-month low earlier in the week.
The PBOC is also widely expected to keep its benchmark on hold at record lows this Monday.
Weakness in China spilled over into other currencies. The rose 0.2% on Friday but was down 1.6% for the week after sinking to a one-month low.
The was headed for a 1.8% weekly decline, while the was set for a 0.8% weekly decline following an unexpected drop in the country’s key .
Most Asian currencies were nursing a weak start to 2024, as signs of sticky U.S. inflation and labor market strength spurred growing doubts over early interest rate cuts by the Fed. Regional currencies largely reversed all gains made through December, as markets began pricing in later and potentially smaller U.S. rate cuts in 2024.
Dollar heads for strong weekly gains as March cut bets recede
The and fell slightly in Asian trade, but remained close to an over one-month high hit earlier this week. The two were also set to end the week between 0.9% and 1% higher.
Strong data and a series of hawkish-leaning comments from Fed officials this week spurred increasing doubts that the Fed will begin cutting rates by as soon as March 2024.
Traders were also seen sharply scaling back bets on a March cut, according to the . Traders were now pricing in a 51.9% chance for a March cut, down sharply from the 68.3% seen last week.
Recent signs of resilience in the U.S. economy gives the Fed enough headroom to keep rates higher for longer. Than bank is also unlikely to budge on interest rates until inflation is within its 2% annual target- with December’s showing little progress.
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The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.
The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.
The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.
Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.
The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).
They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.
The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.
According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.
The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.
Dollar treads water
The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.
He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.
Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.
“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.
Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.
Euro lower ahead of ECB meeting
In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.
“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”
traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.
“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”
BOJ meeting to conclude Friday
In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.
The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery
traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.
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