Forex
Asia FX muted, dollar ticks lower ahead of more rate-cut cues
© Reuters
Investing.com– Most Asian currencies moved little, while the dollar ticked lower on Monday as focus turned to a string of upcoming economic readings and Federal Reserve comments for cues on when the bank could begin trimming interest rates.
Regional markets were also pressured by weak risk appetite, as focus remained on any signs of escalation in the Middle East conflict.
The fell 0.2%, amid persistent bets that the Bank of Japan will largely maintain its ultra-dovish policy when it meets later this month. Japanese (CPI) data, due later this week, is expected to show a sustained decline in inflation.
Chinese yuan static after rate-cut disappointment, GDP awaited
The moved little on Monday, seeing resilience after the People’s Bank of China unexpectedly kept medium-term lending rates unchanged.
The move heralds no changes to the PBOC’s benchmark later in January, offering some strength to the yuan. But no rate cuts also indicate the PBOC has limited headroom to loosen monetary policy further and support the Chinese economy.
Fourth-quarter data, due on Wednesday, is expected to show that the Chinese economy grew more than the government’s 5% target for 2023. But the growth also comes from a low base for comparison from 2022.
Concerns over a slowing post-COVID economic recovery in China weighed on the yuan through the past year, with the currency ranking among the worst-performing Asian units in 2023.
Broader Asian currencies moved in a flat-to-low range, as markets sought more cues on the path of U.S. monetary policy. The Australian dollar rose 0.1%, while the South Korean won fell 0.6%.
The Taiwan dollar was static after the incumbent Democratic Progressive Party (DPP) won the presidential elections over the weekend, securing a third consecutive term in power. But the result also drew ire from China, given that the DPP has constantly voiced support for Taiwan’s independence.
The steadied after recovering from near record lows last week. Indian inflation data is due later on Monday, coming after data on Friday showed a smaller-than-expected increase in .
Dollar inches lower with more Fed cues due this week
The and both fell about 0.1% in Asian trade on Monday, as markets appeared to have largely maintained their expectations of early interest rate cuts by the Federal Reserve.
The showed traders pricing in a 70% chance for a 25 basis point cut in March, up from the 64% chance seen a week ago.
Bets on early rate cuts were reinforced by data on Friday, which showed inflation fell more than expected in December. But the report was preceded by data showing a bigger-than-expected rise in in the month.
Focus was now on addresses from a string of Fed officials this week, which are expected to provide more cues on the bank’s plans to cut interest rates this year.
U.S. data is also due later this week, and is expected to factor into the country’s inflation outlook.
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Forex
Dollar bounces after sharp loss; euro retreats on Lagarde comment
Investing.com – The US dollar edged higher Monday, rebounding after the sharp losses at the end of last week on signs of cooling inflationary pressures, while the euro slipped following dovish comments from ECB head Christine Lagarde.
At 05:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 107.750, after falling sharply from a two-year high on Friday.
Dollar bounces after sharp retreat
The dollar bounced Monday after falling sharply on Friday as the Federal Reserve’s preferred showed moderate monthly rises in prices, with a measure of underlying inflation posting its smallest gain in six months.
That eased some concerns about how much the may cut in 2025, which had risen following the hawkish US rate outlook after the last Fed policy meeting of the year.
That said, traders are pricing in 38 basis points of rate cuts next year, shy of the two 25 bp rate cuts the Fed projected last week, with the market pushing the first easing of 2025 out to June, with a cut in March priced at around 53%.
Trading volumes are likely to thin out as the year-end approaches, with this trading week shortened by the festive period.
Eurozone “very close” to ECB inflation goal
In Europe, fell 0.1% to 1.0414, near a two-year low it touched in November, down 5.5% this year, after European Central Bank President said the eurozone was getting “very close” to reaching the central bank’s medium-term inflation goal.
“We’re getting very close to that stage when we can declare that we have sustainably brought inflation to our medium-term 2%,” Lagarde said in an interview published by the Financial Times on Monday.
Earlier in December, Lagarde had said the central bank would cut interest rates further if inflation continued to ease towards its 2% target, as curbing growth was no longer necessary.
The lowered its key rate last week for the fourth time this year, and is likely to cut interest rates further in 2025 if inflation worries fade.
traded largely flat at 1.2571, after data showed that Britain’s economy failed to grow in the third quarter, adding to the signs of an economic slowdown.
The Office for National Statistics lowered its estimate for the change in output to 0.0% in the July-to-September period from a previous estimate of 0.1% growth.
The ONS also cut its estimate for growth in the second quarter to 0.4% from a previous 0.5%.
policymakers voted 6-3 to keep interest rates on hold last week, a bigger split than expected, amid worries over a slowing economy.
Yuan hits one-year high
In Asia, rose 0.2% to 156.72, after rising as far as 158 last week following dovish signals from the .
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
edged 0.2% higher to 7.3080, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
Forex
Asia FX muted, dollar slips from 2-yr high on soft inflation data
Investing.com– Most Asian currencies moved little on Monday, while the dollar steadied from a tumble from over two-year highs after soft U.S. inflation data spurred some hopes that interest rates will still fall in 2025.
Asian currencies were nursing steep losses against the dollar from last week, although they trimmed some declines on Friday after the soft inflation data. The outlook for regional markets also remains clouded by uncertainty over U.S. interest rates and policy under incoming President Donald Trump.
Dollar slips from 2-yr high as PCE data misses expectations
The and both steadied on Monday after clocking sharp losses on Friday.
The greenback slid from an over two-year peak after data- the Federal Reserve’s preferred inflation gauge- read softer-than-expected on Friday.
Still, the reading remained above the Fed’s 2% annual target, keeping uncertainty over interest rates in play.
The Fed had cut interest rates by 25 basis points last week, but flagged a slower pace of interest rate cuts in the coming year, citing concerns over sticky inflation and resilience in the labor market.
The Fed is expected to cut rates twice in 2025, although the path of rates still remains uncertain.
Markets took some relief from the government avoiding a shutdown after lawmakers approved an eleventh-hour spending bill.
Asia FX pressured by rate uncertainty
Despite clocking some gains on Friday, most Asian currencies were still trading lower for December, as the outlook for interest rates remained uncertain.
The Japanese yen’s pair rose 0.1% to around 156.59 yen, after rising as far as 158 yen last week following dovish signals from the Bank of Japan.
The BOJ signaled that it was not considering interest rate hikes in the near-term despite a recent pick-up in inflation, and could raise rates by as late as March 2025.
The Chinese yuan’s pair rose 0.1%, hitting a one-year high as traders continued to fret over China’s economic outlook. While Beijing is expected to ramp up fiscal spending in the coming year to support the economy, looser monetary conditions are expected to undermine the yuan.
The Singapore dollar’s pair was flat ahead of inflation data due later in the day, while the South Korea’s won’s pair rose 0.3%.
The Australian dollar’s pair rose slightly after sinking to a two-year low last week.
The Indian rupee’s pair steadied after hitting a record high of over 85 rupees last week.
Forex
Dollar to weaken less than expected next year: UBS
Investing.com — The dollar recently notched fresh year-to-date highs against its rivals and is likely to remain strong after the Federal Reserve leaned more hawkish at its recent December meeting, analysts from UBS said in a recent note.
“While we still expect the dollar to fall, we now see less weakness in 2025 given these factors and adjust our forecasts slightly,” analysts from UBS said in a recent note.
The less bearish view on the USD comes in the wake of the greenback making fresh year-to-date highs in key exchange rates and the expectations for fewer U.S. rate cuts.
“The USD has been driven lately by prospects of fewer Fed rate cuts and tariff risks,” the analysts said.
The euro has been particularly affected by dollar strength, but is expected to trade around $1.05 against the greenback in the first half of 2025, the analysts forecast.
But a significant drop toward parity for the can’t be ruled out, “due to real tariff threats or further divergence in the macro backdrop between the US and Europe,” the analysts added.
Still, any move toward parity should be short-lived, the analysts said, amid expectations for the economic backdrop in Europe to improve in the second half of the year, narrowing the divergence between Europe and U.S. yields.
“The trajectory back into the middle of the trading range or higher, 1.08 to 1.10, comes with the view that two-year yield differentials will still narrow to some degree and better macro data out of Europe provide some underlying support for EURUSD in 2H25,” the analysts said.
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