Investing.com — Most Asian currencies fell on Tuesday, with the Chinese yuan weakening sharply as domestic trading resumed after a weeklong holiday.
The dollar stayed within sight of recent seven-week highs amid rising expectations of a slower pace of interest rate cuts from the Federal Reserve – a trend that also weighed on most regional currencies.
The Japanese yen was an outlier, with the pair down 0.3% after reversing some of the steep gains over the past week. The data showed a stable picture and also helped the yen.
Dollar edges fall on bets on a smaller rate cut; inflation was waiting
The and both fell about 0.2% each in Asian trading, retreating slightly from last week’s seven-week highs.
The dollar was mainly boosted by stronger-than-expected data, which reinforced expectations that the Fed will cut rates by a smaller margin in coming months.
Traders were pricing in a nearly 81% chance that the Fed will cut rates by 25 basis points in November, and it showed a nearly 19% chance that rates would remain unchanged.
The focus was now on the Fed’s September meeting, which takes place on Wednesday, for more clues on monetary policy. The Fed had cut rates by 50 basis points at the meeting but had signaled a data-dependent approach to future cuts.
Therefore, inflation data due later this week will likely play a role in interest rate expectations.
The Chinese yuan is falling after a week’s break
The Chinese yuan was the worst performer in Asia on Tuesday, with the onshore pair rising 0.7% as trading resumed after a week.
Sentiment towards China was boosted by a series of stimulus measures from Beijing, including lower interest rates, relaxed property market restrictions and increased liquidity measures.
But increased liquidity and lower interest rates are putting more pressure on the yuan, especially as U.S. interest rates are expected to remain higher.
Broader Asian currencies moved from flat to low. The Australian dollar pair fell 0.3% after the Reserve Bank of Australia’s September meeting showed policymakers are considering a possible rate cut.
Separate data showed an improvement in Australia, on expectations of lower rates.
The South Korean won pair rose 0.3%, while the Singapore dollar pair was flat.
The Indian rupee’s pair has been hovering around record highs.
