Forex
Asia FX weak, dollar at over 2-week high before more rate, inflation cues
Investing.com– Most Asian currencies weakened on Thursday, while the dollar crested over two-week peaks amid caution ahead of more key cues on U.S. inflation and interest rates in the coming days.
Regional currencies were still reeling from a string of hawkish signals from the Federal Reserve, as officials warned that they needed much more confidence that inflation was easing. Some officials also flagged the possibility of more rate hikes, if inflation remained sticky.
Dollar upbeat as GDP, inflation figures loom
The and rose slightly in Asian trade, extending strong overnight gains and reaching their highest levels since mid-May.
Traders remained largely biased towards the greenback amid increasing conviction that the Fed will not cut interest rates any time soon.
A revised reading on first quarter is due later on Thursday, and is expected to show continued resilience in the U.S. economy. Strength in the economy gives the Fed more headroom to keep rates high for longer.
But the main point of focus this week is data, the Fed’s preferred inflation gauge. Due on Friday, the reading is widely expected to show inflation remaining sticky through April.
Several Fed officials are also set to speak in the coming days.
Japanese yen flounders, inflation data awaited
The Japanese yen’s pair fell slightly on Thursday, but remained close to recent highs, amid sustained weakness in the yen.
But further weakness in the yen was stymied by the possibility of more government intervention, after the government was seen intervening in currency markets at the beginning of May. USDJPY reaching 160 had triggered the last bout of intervention.
Focus was now squarely on an upcoming , due on Friday, for more cues on the Japanese economy. Any signs of increasing inflation could bring some relief to the yen.
Broader Asian currencies remained weak. The Chinese yuan’s pair weakened slightly after the People’s Bank of China allowed the currency to weaken to six-month lows this week, amid mounting pressure from concerns over a sluggish Chinese economy.
from China is due on Friday.
The Australian dollar’s pair traded sideways, taking little support from a stronger-than-expected inflation reading on Wednesday.
The Singapore dollar’s pair rose 0.1%, while the South Korean won’s pair surged 0.5%.
The Indian rupee’s pair rose slightly and remained close to recent record highs.
Forex
PBoC adjusts policy amid rising USD demand
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.
Forex
Macquarie sees stable USD/CAD trend, eyes 1.35 mid-year target
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.
Forex
Dollar edges higher; Trump’s speech at Davos in spotlight
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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