Investing.com — Most Asian currencies fell Thursday, coming under pressure from a stronger dollar, after aggressive comments from the Federal Reserve fueled bets on a slower pace of rate cuts in 2025.
The yen was an outlier, benefiting from increased speculation about a Bank of Japan rate hike after stronger-than-expected November payrolls data.
But the yen, like most Asian currencies, suffered steep losses in recent sessions under pressure from a stronger dollar and rising U.S. Treasury yields.
Weak inflation data from China also weighed on sentiment as disinflation continued to play a prominent role in Asia’s largest economy despite recent stimulus measures from Beijing.
Trading in Asia remained steady after returning to two-year highs on Wednesday.
The Fed’s December meeting showed that policymakers were increasingly focused on a slower pace of rate cuts through 2025. Fed members also expressed some concerns that expansionary policies under newly-elected President Donald Trump could support inflation.
The yen rises as payroll data drives Jan’s rate hike
The Japanese yen firmed on Thursday, with the pair falling almost 0.3% and briefly breaking below 158 yen.
November figures were stronger than expected as Japanese wages continued to benefit from the huge increases achieved earlier in 2024.
The data promoted the idea of a virtuous cycle in the Japanese economy: that rising wages will support inflation and give the Bank of Japan more impetus to raise rates sooner rather than later.
“We believe that recent data – including solid consumption, which is 2% above inflation for a significant period and continued healthy wage growth – supports an increase in January,” ING analysts said in a note.
BOJ Governor Kazuo Ueda had previously indicated that the bank would consider wage negotiations in March before deciding on an increase. But ING analysts said there were signs of a rate hike in January, although it still seemed close.
The Chinese yuan weakens due to soft inflation
The Chinese yuan weakened on Thursday, remaining near its lowest level in 17 years. The yuan pair rose 0.2%, remaining well above the psychologically important level of 7.3.
Inflation barely grew in December, while inflation contracted for the 27th month in a row.
The print showed little improvement in China’s long-standing disinflationary trend, and indicated that Beijing will likely have to do more to support economic growth.
Broader Asian currencies mainly weakened on Thursday. The Australian dollar pair fell 0.1% as data showed November growth was less than expected despite support from the Black Friday shopping event.
But Australia’s economy grew stronger than expected in November, supported by strong commodity exports.
South Korea’s won pair fell 0.1% amid continued efforts to arrest President Yoon Suk Yeol over a failed attempt to impose military laws.
The Singapore dollar pair was flat, while the Indian rupee pair hovered just below the 86 rupee level.
