Investing.com — Asian currencies firmed on Tuesday, with the Japanese yen near a 2024 peak as the dollar retreated on growing expectations that the Federal Reserve will cut rates by a wide margin this week.
Regional trading volumes were dampened by market holidays in China and South Korea. Anticipation of Wednesday’s Fed decision also kept traders on the sidelines.
The dollar is retreating with a focus at 50 basis points
The and both fell about 0.1% in Asian trading, adding to losses from the previous session.
The dollar took a hit on growing expectations that the Fed will cut rates by 50 basis points at the end of a meeting on Wednesday. The central bank is also expected to initiate an easing cycle, which could see rates fall by a total of 100 basis points by the end of the year.
Traders estimate a 68% chance of a 50 bp cut and a 32% chance of a 25 bp cut, it showed.
Lower interest rates reduce the dollar’s appeal and push traders to seek higher returns in riskier markets such as Asia. Such a scenario generally bodes well for the regional currency.
But the market was still struggling with weak sentiment due to concerns about slowing economic growth in China.
Still, most Asian currencies posted some gains on Tuesday. The Australian dollar pair rose slightly, while the Singapore dollar pair remained flat.
The Chinese yuan’s offshore pair fell slightly, while local markets were closed for the second straight session. But a slew of weak economic data from the country released this weekend set the yuan up for more weakness.
The Indian rupee pair retreated further from 84 rupees after hitting a series of record highs in August.
Japanese yen firm, BOJ waited
The Japanese yen pair held steady on Tuesday, remaining near its lowest level of the year.
The yen was boosted by the prospect of lower US interest rates, while traders also built up long positions in the yen ahead of next Friday.
Analysts do not expect the BOJ to raise interest rates. But policymakers are expected to take an aggressive stance and forecast higher interest rates in the face of a rebound in inflation.
Japanese figures for August are also due on Friday and are expected to show an increase.
