Investing.com — Most Asian currencies moved into a flat-to-low range Thursday as the dollar strengthened sharply after an outsized rate cut by the Federal Reserve was offset by less dovish signals on future interest rates.
The Japanese yen was among the day’s worst performers, retreating under pressure from the dollar and as traders failed to price in interest rate changes from the Bank of Japan later this week.
Broader Asian currencies were muted following mixed signals from the Fed.
The dollar rises past the 50 basis point rate cut, the Fed’s outlook is less muted
The and both rose about 0.4% in Asian trading, extending overnight gains.
The dollar’s strength came even as the Fed – the higher end of market expectations – came in at a range of 4.75% to 5%.
Fed Chairman Jerome Powell said the risks between higher inflation and more weakness in the labor market are now balanced, and the central bank is likely to cut rates further as confidence grows that inflation will fall.
But Powell also said the bank had no intention of returning to an ultra-low interest rate regime as was the case during the pandemic, and that the Fed’s neutral rate will now be much higher than in the past.
While traders were still pricing in a cut of at least 125 basis points by the end of 2024, Powell’s comments boosted expectations that medium- and long-term rates will be higher than initially expected.
This idea put pressure on most Asian currencies.
The Japanese yen is weakening now that the BOJ is active
The Japanese yen pair rose 0.6% to 143.12 yen and was among the worst performers in Asia.
The currency was under pressure from the dollar’s strength, while traders also braced for no changes in local interest rates after Friday.
The central bank is widely expected to leave rates unchanged, but could still signal future rate hikes based on an elevated outlook for inflation. Japanese also comes on Fridays.
Broader Asian currencies were mostly mixed. The Australian dollar pair rose 0.4%, supported by a stronger-than-expected reading in August.
The strong labor market gives the Reserve Bank of Australia more leeway to keep interest rates higher for longer, which it is more likely to do amid signs of persistent inflation in the country.
The Chinese yuan pair reversed early gains and traded sideways, with the focus squarely on Friday’s People’s Bank decision. The central bank is expected to leave the LPR unchanged.
The South Korean won pair rose 1% as local trading resumed after a three-day holiday. The country shrank slightly in August.
The Indian rupee pair was flat but moved further away from the 84 rupee level. The Singapore dollar pair was flat.
