Investing.com — Most Asian currencies weakened Monday, weighed down by continued pressure from dollar strength, as stronger-than-expected U.S. payrolls data fueled expectations that yields will fall at a slower pace in 2025.
Regional trading volumes were somewhat subdued due to a holiday in the Japanese market, although the yen also remained largely vulnerable, like its regional counterparts.
Positive Chinese trade data did little to improve regional sentiment, with the yuan remaining vulnerable despite efforts by Volksbank to support the currency.
Dollar at 24-month high on strong payroll data
The and drifted higher in Asian trading after hitting their strongest levels since November 2022 on Friday.
The dollar was mainly boosted by stronger-than-expected December data, which showed the US labor market remained strong.
This outcome dovetailed with increased concerns that a strong labor market and persistent inflation will give the Federal Reserve even more impetus to slowly cut rates this year.
To this end, the inflation figures for the consumer price index will be published next Wednesday. These will be closely watched for more signals on interest rates.
A series of Fed officials are also scheduled to speak this week, after minutes of the December Fed meeting showed policymakers growing concerned about high inflation and a strong labor market.
Analysts at Goldman Sachs said they now expected just two rate cuts in 2025, down from previous expectations of three cuts. The Fed’s final interest rate is also expected to be higher than initially expected.
Chinese Yuan weak despite positive trade data and PBOC support
The Chinese yuan weakened on Monday, rising 0.3%.
The yuan’s weakness came even after data showed China’s economy grew stronger than expected in December, helped by outsized yuan gains.
But the outcome was largely related to exporters pre-loading their shipments before newly-elected US President Donald Trump imposed steep trade tariffs on the country.
Trump, who will take office on January 20, has promised to impose tariffs on China from “day one” of his presidency.
Recent measures by the PBOC did little to help the yuan. The central bank has halted its bond-buying liquidity programs and implemented a series of strong midpoint fixes.
The focus now is on more stimulus from Beijing, especially in response to Trump’s tariffs.
Broader Asian currencies moved from flat to low, remaining under pressure on the prospect of higher US interest rates.
The Japanese yen pair fell 0.1%, remaining subdued by uncertainty over a Bank of Japan meeting later this month.
The Australian dollar pair rose 0.1% after falling to a near five-year low last week. The South Korean won pair fell slightly, while the Singapore dollar pair rose 0.1%.
The Indian rupee pair remained steady after hitting new record highs above 86 rupees.
