Forex Innovation

Asia FX sinks as caution over Fed, CPI inflation, boosts dollar
Investing.com-- Most Asian currencies fell on Monday, while the dollar rose as markets hunkered down ahead of highly awaited signals on U.S. monetary policy from a Federal Reserve meeting and a reading on U.S. consumer inflation.

Most regional units were also nursing losses from last week, amid growing concerns over a potential recession in 2023, which dented demand for risk-driven assets.

The South Korean won and the Malaysian ringgit fell 0.5% each - the most among their regional peers, while the Chinese yuan shed 0.3%.

Optimism over the withdrawal of anti-COVID measures in China was largely offset by fears that a big jump in local infections will delay a broader reopening. Analysts also forecast increased market volatility in the country as it re-emerges from nearly three years of COVID lockdowns.

Still, a Chinese reopening stands to benefit the Asian economies that depend on the country as a trading partner.

The Japanese yen fell 0.2% as data showed producer price inflation in the country rose more than expected, heralding increased pressure on the economy in the coming months.

The yen has also benefited in recent weeks from speculation that high inflation will force the Bank of Japan into eventually changing its ultra-loose stance on monetary policy.

The Indian rupee fell 0.3% ahead of consumer inflation data that is expected to show that price pressures eased further in November. But the Reserve Bank recently signaled that Indian inflation is expected to remain elevated in the near-term.

The dollar strengthened on Monday, as investors positioned for a potentially stronger-than-expected consumer price index (CPI) reading on Tuesday. Data released last week showed that producer price inflation eased less than expected in November, heralding a similar trend in the CPI.

The dollar index and dollar futures both rose 0.3%, and hovered near 105 points

A stronger-than-expected inflation reading could invite more hawkish signals from the Federal Reserve, at the conclusion of its two-day meeting on Wednesday.

While the central bank is expected to hike rates by a relatively smaller 50 basis points this week, stronger-than-expected inflation could push it into keeping rates higher for longer than expected.

Strong U.S. data for November ramped up concerns that inflation could remain sticky in the near-term. This invited warnings over a potential U.S. recession in 2023, which dented Asian currencies in recent sessions.

Rising U.S. interest rates were the biggest weight on Asian currencies this year, as the gap between risky and low-risk yields narrowed.

Asia FX turns cautious ahead of U.S. payrolls, dollar hits 3-mth low

Investing.com-- Most Asian currencies moved little on Friday as caution kicked in ahead of U.S. payrolls data that is likely to affect monetary policy, although dovish signals from the Federal Reserve pushed the dollar to a three-month low.

Regional currencies were also set for strong gains this week as the Federal Reserve flagged smaller interest rate hikes in the coming months- a scenario that is positive for risk-driven assets.

The Japanese yen rose 0.1%, and was the best performing Asian currency this week, up nearly 3% at a three-and-a-half-month high of 135.19 as it recovered further from a 30-year low.

The Chinese yuan fell 0.2%, although speculation that China will relax its strict anti-COVID policies saw the currency set for a 1.7% gain this week.

Growing public discontent with the country’s anti-COVID restrictions sparked a wave of unprecedented protests in the country this week, which also saw the government loosen some quarantine and movement measures in two major cities.

Weak PMI data, which highlighted even more pressure on the Chinese economy in recent months, also drummed up hopes that the government will be forced into relaxing its COVID policies. But Beijing has given no official word on such a move.

Broader Asian currencies were muted on Friday. The South Korean won rose 0.4% and was set to add 2.6% this week, while the Taiwan dollar headed for a weekly gain of 1.3%.

The dollar index and dollar index futures both moved little on Friday, but were set to lose 1.1% this week, their second straight week of losses.

Focus is now on U.S. nonfarm payrolls data due later in the day, which is expected to show that the country’s jobs market cooled slightly in November. The Fed has also targeted some cooling in the labor market as part of its measures against inflation this year.

But Powell warned that U.S. interest rates could peak at higher-than-expected levels, especially if inflation remains stubbornly high in the country.

PCE inflation data, which is the Fed’s preferred gauge of price pressures, was steady at an annualized rate of 6% in October, data showed on Thursday, remaining well above the Fed’s 2% target.

In Southeast Asia, the Thai baht was the best performer this week with a 2.6% gain following an interest rate hike and more hawkish signals from the country’s central bank.

The Indonesian rupiah jumped 0.8% and was the best performer on Friday after strong inflation readings for November suggested that the central bank will keep raising interest rates.