Investing.com — Most Asian currencies weakened Tuesday, while the dollar held steady at a more than two-month high, amid continued bets that the Federal Reserve will cut interest rates at a slower pace.
Comments from Fed officials confirmed this idea, especially as recent data showed resilience in U.S. inflation and the labor market. Traders were seen positioning themselves for a smaller rate cut in November.
Sentiment toward Asian markets was dampened by waning cheers over recent stimulus from China, especially as Beijing left out key details from a briefing on planned fiscal measures. The yuan weakened further on Tuesday.
Dollar steady near two-month high
The and fell slightly in Asian trading after hitting a two-month high on Monday.
The dollar found its footing in recent weeks as U.S. labor market and inflation data fueled expectations of a slower pace of Fed rate cuts.
Fed Governor Christopher Waller promoted this idea on Monday, calling for “more caution” in future rate cuts. Waller said the central bank should only cut interest rates gradually in the coming months.
The Fed had cut rates by 50 basis points in September and signaled the start of an easing cycle, although it had also maintained a largely data-driven approach to future easing.
Traders were pricing in an 86.8% chance of a 25 basis point cut in November, and a 13.2% chance of it remaining unchanged, it showed.
Most Asian currencies have weakened over the past two weeks on this idea, and were mostly negative on Tuesday. The Japanese yen pair fell slightly, but almost broke above 150 yen.
The Australian dollar pair fell marginally but posted losses in recent sessions, tracking weakness in commodity prices.
The South Korean won pair rose 0.3% after the Bank of Korea cut interest rates last week, while the Singapore dollar pair rose slightly.
The Indian rupee pair remained close to a record high of 84 rupees even as inflation data for September was warmer than expected.
China’s Yuan Weakens as Stimulus Cheers Ease
China’s yuan was among the worst performers on Tuesday, with the pair rising 0.3% to its highest in almost a month.
Sentiment toward the yuan remained volatile as traders were only marginally impressed by China’s fiscal stimulus plans. The Ministry of Finance has also not provided important details about the planned measures, in particular their scope and timing.
Sentiment towards China was also affected by a series of weak economic data. Data on Monday showed China’s economy shrank more than expected in September, reflecting a sharp slowdown in growth, while earlier measurements showed a disinflationary trend was still in place.