Asia Currency Market Weak, Dollar Rises as Markets Wait for More Fed Signals and Interest Rate Cuts By

Asia FX weakens, dollar rises as markets await more Fed, rate-cut cues

© Reuters — Most Asian currencies fell on Tuesday, while the dollar advanced as traders remained largely risk-off before more signs emerged about when the Federal Reserve could start cutting interest rates.

Expectations of key economic readings from China kept regional markets in a state of tension, while fears of escalating conflict in the Middle East kept risk appetite weak.

It fell 0.2% and exceeded the level of 146 per dollar. Data released on Tuesday showed inflation remained weak in December, coming just days before the data, which was also expected to show inflation remaining weak.

Lower inflation gives less impetus for the Bank of Japan to start tightening its overly dovish policy, which does not bode well for the yen.

Broader Asian currencies also fell. The main indicator of risk appetite in the region fell by 0.5%, influenced by weak commodity prices. The data also showed that the Australian situation worsened in early January, amid concerns about rising interest rates and inflation.

It fell by 0.7% as data showed a continued decline in prices. It lost 0.1% after data on Monday showed that inflation rose less than expected in December.

The index decreased by 0.6%, amid increasing volatility after the current Democratic Progressive Party obtained a third consecutive term in the recent presidential elections. But this move is expected to spark more anger from China.

The dollar strengthens before the economy. Data, Fed comments

The index rose 0.5% and 0.3%, respectively, in Asian trading on Tuesday. The dollar index was also trading at a small premium to futures, indicating increased demand for the greenback in the near term.

Traders are now awaiting further signals on the Fed and the US economy, as they are scheduled to speak later on Tuesday.

On Wednesday, US and US readings are set to provide more signals on the world’s largest economy, with any signs of a slowdown giving more credence to bets on early interest rate cuts.

But markets appear to have scaled back slightly on bets that the Fed will start cutting interest rates by March 2024, according to .

The Chinese yuan declines, and awaiting fourth-quarter GDP

The index fell 0.2% to its lowest level in more than a month against the dollar, as traders remained largely averse to Chinese assets amid continuing concerns about the economic recovery.

The focus is now squarely on fourth-quarter data scheduled for release on Wednesday for more indicators on the economy. GDP is expected to slightly exceed the government’s annual target of 5% for 2023.

But the higher reading is likely driven by a lower base for comparison from 2022, as China’s economy suffers a resurgence after three years of coronavirus lockdowns.

The yuan was among the worst-performing Asian currencies in 2023, as the post-Covid-19 economic recovery failed.

China and December figures are also scheduled for release on Wednesday.

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