Investing.com — Most Asian currencies moved within a tight range on Tuesday, while the dollar posted short-term gains as traders positioned for a slower pace of interest rate cuts in the coming year.
Before the Christmas holidays, trading volumes were subdued, while most regional currencies posted steep losses against the dollar this year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns about persistent US inflation.
Dollar near 2-year high on aggressive interest rate outlook
The and both rose about 0.1% in Asian trading, extending overnight gains and coming back within sight of a two-year high last week.
While the dollar showed some weakness after November data looked lower than expected, this was largely offset by traders lowering expectations for rate cuts in 2025.
The Fed has announced just two rate cuts in the coming year, down from previous forecasts of four.
Higher US interest rates reduce the appeal of risk-driven Asian markets, limit the amount of capital flowing into the region and put pressure on regional markets.
Asia FX under pressure from sticky US interest rate outlook
Most Asian currencies have weakened in recent sessions on the prospect of slower US interest rate cuts, while uncertainty over local monetary policy and slowing economic growth also weighed.
The Japanese yen pair fell 0.1% on Tuesday, having risen as high as 158 yen in recent sessions, after the Bank of Japan indicated it will take time to consider further rate hikes.
The Australian dollar pair fell 0.2% after minutes of the Reserve Bank’s December meeting showed policymakers eyeing an eventual easing of monetary policy, citing some progress in reducing inflation. But they still pointed to potential upside risks to inflation.
The Chinese yuan pair rose 0.1%, holding near a one-year high, as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Beijing has indicated it will increase budget spending in 2025 to support slowing economic growth.
The Singapore dollar pair rose 0.1%, while the Indian rupee pair rose 0.1% after hitting record highs above 85 rupees.
