Investing.com — Most Asian currencies moved little Monday as markets turned cautious ahead of a Federal Reserve meeting this week, while the Japanese yen recovered after sinking to new 34-year lows earlier in the day.
The dollar retreated somewhat under pressure from the yen’s recovery, although it still retained much of its gains through April. Signs of persistent U.S. inflation led markets to steadily price down expectations of early Fed rate cuts that would boost the dollar.
The Japanese yen recovers, USDJPY plummets from 160
The pair, which measures the amount of yen needed to buy one dollar, fell 1.8% to 155.48 after rising as high as 160.20 earlier in the day.
The reason for the pair’s decline was not immediately clear, although it could be related to government intervention. The Japanese markets were closed for a holiday.
The yen had weakened sharply against the dollar in recent sessions, with the USDJPY pair rocketing past levels that had prompted intervention in the past. This came after weak Japanese inflation data and mediocre signals from the Bank of Japan, while fears of longer interest rates in the US also weighed.
But while the yen staged a strong recovery on Monday, room for more gains in the currency remained limited, especially ahead of a Fed meeting this week.
The dollar will weaken due to the strength of the yen, the Fed expected
The index fell 0.2% and 0.3% respectively, after rising sharply on Friday.
The dollar rallied sharply in April as traders largely priced in expectations of early Fed rate cuts.
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These bets came to a head on Friday after data – the Fed’s favorite inflation gauge – for March came in warmer than expected.
The focus this week is now entirely on a Fed meeting. The central bank is expected to keep rates steady and provide a potentially aggressive outlook given the recent persistence of U.S. inflation.
The prospect of longer interest rates bodes ill for Asian markets, an idea that kept most regional currencies in a tight range on Monday.
The Chinese yuan pair fell slightly, as did the Indian rupee pair. Traders were wary of any volatility in the rupee as the 2024 Indian general elections began.
The Australian dollar was an outlier among its peers, with the pair rising 0.8% on speculation that warmer-than-expected inflation in the first quarter would attract more rate hikes from the Reserve Bank of Australia.
The South Korean won pair moved little, as did the Singapore dollar pair.
