Investing.com — Most Asian currencies moved from flat to low on Friday, pressured by dollar strength, as traders positioned for a slower pace of Federal Reserve rate cuts in 2025.
Regional trading volumes remained subdued due to the New Year holidays, while Japanese markets remained closed until next week.
The Chinese yuan was among the worst performers in Asia, hitting its weakest level in almost 16 months as the People’s Bank of China will cut interest rates further in 2025, according to a Financial Times report.
The yuan, like its regional peers, also suffered steep losses in 2024 as the dollar benefited from an aggressive Fed and the prospect of protectionist policies under incoming President Donald Trump.
Dollar is at a two-year high as interest rate cuts ease
The index fell 0.1% in Asian trading after rising to a new two-year high on Thursday.
The dollar’s latest round of gains came after stronger-than-expected weekly data showed the labor market remained strong. A strong labor market gives the Fed more leeway as it considers future monetary easing.
The central bank signaled at its December meeting that it will cut rates at a significantly slower pace in 2025, citing concerns about persistent inflation.
The resilience of the US economy is also giving the Fed less incentive to cut rates, although the Atlanta Fed was downgraded for the fourth quarter on Thursday.
The Chinese yuan weakens as the PBOC signals further interest rate cuts
The Chinese yuan was among the worst performers in Asia, with the pair rising almost 0.4% to 7.3275 yuan – the highest level since September 2023.
The FT reported that the PBOC will cut rates further in 2025 as the central bank shifts to a more conventional monetary policy structure under a single benchmark rate.
The monetary policy reform comes as a slew of liquidity measures have largely failed to boost China’s economy over the past two years. This is expected to lead to more monetary easing by the PBOC, which bodes ill for the yuan.
The yuan already posted losses this week after previously released purchasing managers’ index data showed slowing growth in China’s manufacturing sector.
Broader Asian currencies moved within a tight range but posted steep losses in recent months as traders positioned for a slower pace of US interest rate cuts in 2025.
The Japanese yen pair fell 0.1% after hitting a five-month high in late December.
The Australian dollar pair rose 0.2%, while the South Korean won pair fell 0.2% due to repeated assurances of financial stability from the government.
The Indian rupee pair remained steady at 85.8 rupees after hitting a record high above 86 rupees earlier this week.
