Investing.com — Most Asian currencies firmed on Friday as continued bets on U.S. interest rate cuts left the dollar on course for a fourth straight week in the red, while the Japanese yen continued to fall on improving risk sentiment.
While the dollar recovered from a nearly seven-month low on Thursday, it was still heading for weekly losses amid growing belief that the Federal Reserve will cut interest rates in September.
This idea stimulated some flows into Asian markets, although uncertainty about China and expectations of a smaller Fed rate cut still limited local currency gains.
The Japanese yen weakens as demand for safe havens declines
The Japanese yen firmed slightly on Friday but was among the worst-performing Asian currencies this week as improved risk appetite sapped safe-haven demand for the currency.
The yen pair fell 0.2% on Friday but rose 1.6% this week, with the pair moving closer to the 150 yen level. It had fallen to 141 yen last week amid a slump in global risk-driven markets.
Still, the outlook for the yen looked good, especially as this week’s gross domestic data showed the Japanese economy strengthening on higher wages. The strength of the economy is expected to give the Bank of Japan more room to raise interest rates further.
The dollar is heading for weekly losses, fears of a recession are subsiding
The and both fell slightly in Asian trading and are expected to lose about 0.2% this week – their fourth straight week in the red.
Stronger-than-expected July data provided some strength to the dollar on Thursday, while also further allaying fears of a recession.
But soft inflation data released earlier this week has raised expectations that the Fed will cut rates in September, albeit by 25 basis points instead of previous expectations of a 50 basis point cut, according to .
Still, the prospect of lower interest rates kept pressure on the dollar, while improved risk appetite also boosted capital flows into higher-yielding currencies.
Among other Asian currencies, the Chinese yuan pair fell 0.2% but is expected to rise slightly this week. A slew of mixed economic views on China did little to improve sentiment towards the yuan, nor did assurances of more stimulus from Beijing.
Attention now turns to a decision by the People’s Bank of China on its benchmark next week, after the PBOC unexpectedly cut rates in July.
The Australian dollar pair rose 0.2%, while the New Zealand dollar pair rose 0.5%, even as Reserve Bank of New Zealand Governor Adrian Orr signaled at least 50 basis points of interest rate cuts this year.
The South Korean won pair fell 0.4%, while the Singapore dollar pair fell 0.1%.
The Indian rupee pair fell slightly but remained within sight of record highs above 84 rupees.
