Forex
Asia FX muted amid rate hike fears, intervention chatter
© Reuters.
Investing.com — Most Asian currencies moved little on Friday as markets sought more cues on U.S. interest rate hikes, while the Chinese yuan and Japanese yen were supported by speculation over government intervention in currency markets.
A stronger-than-expected reading on spurred steep losses in Asian currencies on Thursday, while the dollar steadied on increased expectations that the Federal Reserve will keep raising interest rates in the coming months.
The and fell about 0.1% each in Asian trade, but were still set to gain marginally for the week.
In contrast, most Asian currencies were set for weekly losses on expectations that the gap between risky and low-risk yields will narrow in the coming months.
The was among the worst performers for the week, down 0.7% as clear signals from the Reserve Bank on pausing its rate hike cycle diminished the currency’s appeal.
Chinese yuan, Japanese yen buoyed by intervention talk
The and the both rose slightly on Friday, supported by persistent speculation that Beijing and Tokyo will intervene in currency markets to stem weakness in their respective currencies.
The yuan was also boosted by a series of strong midpoint fixes by the People’s Bank of China, which steadied the currency despite a string of weak economic readings from China.
The Chinese government had last week intervened in currency markets for the first time in eight months, stemming a recent decline in the yuan as the country’s economic outlook worsened. Traders were watching for any more such moves from Beijing, given that the yuan was trading well below the psychologically important 7 level.
While the Japanese yen saw no direct intervention, it also pulled back from the key 145 level against the dollar, amid a slew of verbal warnings from Japanese officials on betting against the yen.
But the outlook for the yen appeared bleak, especially as the Bank of Japan reiterated its plans to keep policy loose.
Nonfarm payrolls in focus, rate hike bets increase
Broader Asian currencies moved little as markets hunkered down ahead of key U.S. due later on Friday. The added 0.2%, while the rose 0.3%, with both currencies set to end the week unchanged.
Thursday’s payrolls data saw markets increase their bets on a Fed rate hike in late-July, with pointing to a nearly 92% chance of a 25 basis point hike.
With most Asian central banks having paused or concluded their rate hike cycles, rising U.S. interest rates are likely to further pressure regional currencies in the coming months.
Investing.com– The Japanese yen exhibited minimal movement on Tuesday, despite Bank of Japan (BOJ) Deputy Governor Ryozo Himino indicating a potential hike in the upcoming policy meeting.
Himino suggested that the central bank might consider raising rates, citing sustained wage growth and expectations of a clearer U.S. policy landscape following President-elect Donald Trump’s inaugural address later this month.
The yen’s pair edged 0.1% higher to 157.62 yen on Tuesday.
In recent months, the BOJ has been adjusting its monetary policy to address rising inflation. In March last year, it ended its negative interest rate policy, and by July, it had increased the short-term policy rate to 0.25%.
These measures aim to achieve a stable 2% inflation target, supported by robust wage growth and a weakening yen, which have contributed to higher import costs.
Despite these developments, the yen’s exchange rate against the U.S. dollar remained relatively stable, reflecting market skepticism about the likelihood of an imminent rate hike.
Analysts suggest that while the BOJ is signaling a shift towards policy normalization, uncertainties surrounding global economic conditions and domestic wage dynamics may lead to a cautious approach.
Barclays (LON:) expects the central bank to implement rate hikes in March and October, with a terminal rate of 0.75%.
The BOJ’s next policy meeting is scheduled for January 23-24, where new growth and price projections will be discussed.
Investing.com — UBS strategists expect the US dollar “to stay stronger for longer,” citing robust US economic activity and ongoing tariff concerns impacting other regions.
Monday saw the (DXY) soar to its highest level since November 2022, trading above the 110 mark during the session. This represents a roughly 9% appreciation since late September.
The US dollar’s recent strength has been bolstered by better-than-expected domestic data, including nonfarm payrolls and the services sector purchasing managers’ index. These positive indicators have led to a decrease in the anticipated number of Federal Reserve rate cuts this year, with the consequent rise in US yields lending broad support to the USD.
While US economic data is expected to remain solid in the near term, the outlook for Europe is less optimistic, with subdued growth prospects.
Although growth in China is forecasted to accelerate to 5% year-over-year for the fourth quarter, the threat of US tariffs poses a significant risk. Political and economic uncertainties in South Korea, the European Union, and the UK have been linked to weakness in their respective currencies.
According to UBS, potential monetary policy divergence is among the key factors that could further propel the dollar upward in the near term.
While the Fed is expected to cut rates by a total of 50 basis points in the second and third quarters, the European Central Bank is projected to reduce rates by 100 basis points in the first half of the year.
“Policy divergence is a powerful driver of currencies, which leads to trending FX markets and the potential for overshooting exchange rates,” strategists led by Mark Haefele wrote.
The firm also points out that tariff risks may not be fully accounted for in the current USD valuation. Despite the dollar’s recent rally being largely attributed to solid US macroeconomic data, the introduction of new tariffs could drive the dollar even higher.
UBS suggests that if tariffs are implemented, the DXY could trade between 110 and 115, with significant impacts on other major currency pairs.
“If tariffs were to materialize, DXY could trade in a 110-115 range, could drop below parity, could slide below 1.20, and could move toward 0.94, in our view,” strategists noted.
However, the investment bank believes that the story of 2025 could be a tale of two halves, with the dollar strength in the first half of the year potentially reversing in the second half.
The current trading position of the USD, which is considered strongly overvalued and shows the highest level of dollar net length since 2015, supports this view.
UBS’s revised forecasts for the EUR/USD pair reflect this expected trajectory. Strategists expect the pair to trade at 1.00 in March, 1.02 in June, and 1.06 in December 2025.
In the case of China, despite the possibility of dramatically higher effective tariff rates, the CNY has only partially priced in this risk, with UBS reiterating its forecast for the to reach 7.50 by June.
Forex2 years agoForex Today: the dollar is gaining strength amid gloomy sentiment at the start of the Fed’s week
- Forex2 years ago
How is the Australian dollar doing today?
- Forex2 years ago
Unbiased review of Pocket Option broker
- Forex2 years ago
Dollar to pound sterling exchange rate today: Pound plummeted to its lowest since 1985
- Cryptocurrency2 years ago
What happened in the crypto market – current events today
- World2 years ago
Why are modern video games an art form?
- Commodities2 years ago
Copper continues to fall in price on expectations of lower demand in China
- Forex2 years ago
The dollar is down again against major world currencies
