Investing.com–Most Asian currencies traded within a tight range on Wednesday, with the dollar holding near three-week highs as traders retreated ahead of more signals on Federal Reserve interest rates.
Reports of higher budget spending in China have done little to improve sentiment towards the regional currency, with the yuan hovering around its weakest level in 13 months.
In addition to the Fed, this week will also see decisions from central banks in Japan, Thailand, Indonesia and the Philippines, which will provide more clues about Asian monetary policy heading into 2025.
Most regional currencies posted losses against the dollar in recent sessions as traders largely turned to the greenback in anticipation of a slower pace of rate cuts in 2025.
Dollar Stable, Focusing on Fed Outlook
The and both held steady in Asian trading, remaining within sight of a three-week high earlier this week.
It is widely expected that the Fed will do this. But traders are bracing for a potentially aggressive outlook from the central bank, especially in light of recent data showing U.S. inflation remains stubborn and the labor market is strong.
The central bank is expected to signal a slower pace of easing in 2025, with several analysts including Goldman Sachs predicting a pause in January.
Stronger-than-expected data for November, released on Tuesday, reinforced expectations that the Fed will have plenty of room to cut rates at a slower pace.
Expansionary and protectionist policies under incoming President Donald Trump are also expected to support inflation and interest rates in the coming years.
Chinese Yuan Near 13-Month Low; budget target provides little support
The Chinese yuan pair rose 0.1% on Wednesday and was close to its highest level since November 2023.
Reuters reported that China planned to increase its budget deficit to 4% from 3% of gross domestic product in 2025, and also target 5% annual GDP growth for the third consecutive year.
While the move will mean higher fiscal spending, it also heralds pressure on the yuan as China is likely to further ease monetary conditions to facilitate its plans for more stimulus.
BOJ, the Asian central banks waited
The focus this week is also on a series of important meetings of Asia’s central banks. The most notable is the , which kicked off a two-day meeting on Wednesday.
The Japanese yen was muted with the pair hovering above 153.5 yen amid uncertainty over what the BOJ will do. Analysts are divided between expectations for a hold or a 25 basis point increase.
The Thai baht pair rose 0.2%, while interest rates are widely expected to remain stable later on Wednesday. The Indonesian rupiah pair was also flat, while the country was expected to keep interest rates unchanged on Wednesday.
The Philippine peso pair is due to move around on Thursday ahead of a central bank meeting where interest rates are expected to be cut for the third time this year.
Broader Asian currencies moved from flat to low. The Australian dollar pair fell 0.3%, while the Singapore dollar rose 0.1%.
The South Korean won pair fell 0.2% on continued reassurances of economic stability by the government following President Yoon Suk Yeol’s failed attempt to impose martial law.
The Indian rupee pair held steady after briefly hitting a record high above 85 rupees earlier in the session. The currency was hit by continued capital outflows from India, while weakness also weighed.
