Investing.com — Most Asian currencies rose on Friday, while the dollar pared losses after the Federal Reserve cut rates by a wide margin and set off an easing cycle.
The Japanese yen was among the better performers, strengthening after the Bank of Japan maintained interest rates and said it expected a steady rise in inflation and economic growth.
The Chinese yuan also firmed after the People’s Bank of China kept its benchmark interest rate unchanged, dodging some expectations that it would cut rates to further support the economy.
The yen is firming as the BOJ holds rates steady and signals higher inflation
The Japanese yen firmed on Friday, falling 0.2% to 142.28 yen.
The BOJ made a unanimous decision saying it expected inflation and economic growth to increase steadily.
Although the central bank did not give overtly aggressive signals, its forecast of higher inflation was in line with expectations that the BOJ would raise interest rates further. A range of policymakers had indicated that interest rates will rise further in the coming months, especially as inflation rises.
The BOJ’s decision and forecast came just hours after data showed inflation rose to a 10-month high in August as higher wages boosted private consumption.
Although the yen suffered weekly losses, it still remained close to its strongest level of 2024, which was reached earlier this week. Expectations of higher interest rates are likely to support the yen in the coming months.
Weak dollar after interest rate cut offsets less dovish signals from the Fed
The and both fell slightly in Asian trading, extending overnight declines as markets eyed lower US yields.
The Fed announced the start of an easing cycle, which could see rates fall by as much as 125 basis points by the end of the year.
But Fed Chairman Powell offered a less dovish outlook for medium- to long-term rates, saying the central bank’s neutral rate will be much higher than in the past. His comments limited overall losses in the dollar, and also saw the dollar rise in value in the immediate aftermath of Wednesday’s Fed decision.
Chinese Yuan at 16-Month High as PBOC Holds Rates
The Chinese yuan firmed on Friday, with the pair falling 0.3% to its lowest level since May 2023.
The yuan’s strength came as the PBOC kept its benchmark steady and dodged some expectations that it would cut rates further to stimulate the economy.
The PBOC’s decision came at a time when a range of recent economic indicators showed continued weakness in China.
But according to media reports, the PBOC ordered local banks to buy dollars and limit the overall strength of the yuan, as a stronger yuan also weighs on Chinese exports.
Broader Asian currencies firmed following the Fed’s decision. The Australian dollar pair rose 0.2% and was close to an eight-month high.
The South Korean won pair was an outlier, rising 0.2%, while the Singapore dollar pair fell 0.1%.
The Indian rupee pair fell 0.1%, retreating further from record highs earlier this year.
