Investing.com — Most Asian currencies firmed on Monday, with the Japanese yen rising sharply amid rising expectations that the Federal Reserve will cut interest rates in September, leaving the dollar at a 13-month low.
Most regional currencies rose in value from the previous week, especially after comments from Fed Chairman Jerome Powell on Friday boosted expectations for a rate cut.
But anticipation of more US economic data this week, especially key inflation figures, still caused some caution as markets remained uncertain about the size of a September rate cut.
Dollar at 13-month low after September interest rate cut was all but confirmed
The and both fell slightly in Asian trading, trading at their weakest levels since July 2023.
The dollar was under pressure from Powell’s comments as the Fed chairman said further cooling in the labor market was unhealthy and said it was time to adjust policy accordingly.
Speaking at the Jackson Hole Symposium, Powell noted that inflation was close to the Fed’s 2% annual target, but said the timing and size of any rate cuts will still depend on economic data.
Powell’s comments reinforced expectations for a cut in September. But traders were divided between a 25 and 50 basis point cut.
His comments also focused attention this week on the coming economic data, with Friday’s data expected to provide more definitive guidance on interest rates.
This reading is the Fed’s favorite inflation gauge and will likely play a role in the central bank’s interest rate outlook.
Japanese Yen Strong, USDJPY Close to August Lows
The Japanese yen was among the better performers in Asia, with the pair down 0.4% on Monday. The pair was also close to the lows of early August, when a hawkish Bank of Japan, increased safe-haven demand and an unwinding carry trade pushed the currency to its strongest levels since early January.
But the yen’s strength somewhat undermined a risky move in Asian markets, as it also meant a further unwinding of the carry trade that had fueled strong capital flows into Asian markets.
The yen is likely poised for more strength this year, especially with the prospect of lower interest rates in the US and possible rate hikes by the Bank of Japan.
expected this Friday will offer more signals.
The broader Asian coins were a mixed bag. The Chinese yuan pair fell slightly after Volksbank kept medium-term interest rates unchanged and raised about 101 billion yuan of liquidity through the facility.
The Australian dollar pair fell 0.2%, cooling after strong gains over the past week.
The South Korean won pair rose 0.2%, while the Indian rupee pair stabilized after breaking well below record highs on Friday.