Forex
Asia FX slips as dollar firms before the Fed; yuan hit by underwhelming stimulus
Investing.com– Most Asian currencies were subdued on Friday as the dollar strengthened ahead of a Federal Reserve rate decision next week, while disappointing cues on stimulus from a top-level meeting in China weighed on the yuan.
Investors remained cautious and avoided making significant moves ahead of the due next week, where a 25 basis point rate cut is widely anticipated. Concerns over the longer-term trajectory of interest rates tempered market enthusiasm, and gave dollar a boost.
The rose 0.2%, while inched 0.1% higher in Asian trade in Friday.
Chinese yuan slips as CEWC fails to deliver surprise stimulus
The Chinese yuan’s onshore pair rose 0.2% and was hovering near a two-year high mark, while offshore pair edged 0.1% higher.
China ended its two-day Central Economic Work Conference (CEWC) on Thursday, but left markets disappointed due to lack of aggressive stimulus measures, which investors had hoped would boost domestic demand.
China has pledged to boost its budget deficit, increase debt issuance, and ease monetary policy to sustain economic growth amid anticipated trade tensions with the U.S., a state media readout from CEWC showed. But markets saw the policies unlikely to provide the immediate economic momentum needed to counteract China’s deflationary pressures.
The yuan has been under pressure, with consecutive weekly falls in the past few months due to impending U.S. tariffs under the incoming president Donald Trump. It was set to inch lower for this week.
“With our new house view on tariffs, we’ve turned a little more cautious on the near-term CNY outlook. A Trump trade unwind could help the CNY recover, but tariff developments could be catalysts for more depreciation,” ING analysts said in a recent note.
Dollar set for best week in a month, Thai baht lead losses in Asia FX
The dollar index was set for its best week in over a month even as traders positioned for a Fed rate cut next week. But higher-than-anticipated and largely in-line consumer inflation in for November led to markets pricing in a slower pace of rate cuts in 2025.
The Thai baht’s pair jumped 0.8%, while Indonesian rupiah’s pair rose 0.3%.
The South Korean won’s pair inched 0.2% higher, a day ahead of a planned parliamentary vote to impeach country’s President Yoon Suk Yeol over his attempt to impose martial law in the country.
The Japanese yen’s pair rose 0.3% as media reports showed that the Bank of Japan was likely to keep unchanged next week, in contrast to earlier expectations of a hike.
In other regions, the Singapore dollar’s pair inched slightly higher, while the Australian dollar’s pair was largely unchanged.
The Indian rupee’s pair was muted, remaining near an all-time high hit on Thursday.
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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