Asia FX creeps higher, dollar dips ahead of Fed rate hike

Investing.com — Most Asian currencies crept higher from recent losses on Wednesday, while the dollar relinquished some gains as markets hunkered down before a widely expected interest rate hike by the Federal Reserve later in the day.

Market holidays in China and Japan kept regional trading volumes slim.

Still, the rose 0.4%, recovering from a near two-month low as fears of a U.S. banking crisis drove up safe haven demand. But the outlook for the yen remained muted, following dovish signals from the Bank of Japan on tightening monetary policy.

The added 0.3%, recovering slightly after tumbling to a five-month low in April, while the added 0.1%.

The rose 0.1%, extending gains after the Reserve Bank unexpectedly on Tuesday and signaled more tightening to curb . Slightly stronger-than-expected data on Wednesday also showed some resilience in the Australian economy, which gives the RBA more headroom to hike rates.

The rose 0.1% even as data showed eased more than expected in April, which likely necessitates a less hawkish stance from the country’s central bank.

The moved little after logging wild swings this week, but was still trading near a two-month low after data showed that a post-COVID economic rebound in China was running out of steam.

Broader Asian currencies edged higher, while the dollar fell slightly against a basket of currencies, as markets awaited the conclusion of a two-day Fed meeting later in the day.

The and fell about 0.2% each.

While the Fed is widely expected to , markets are split over whether the central bank will announce a pause in its rate hike cycle.

While a brewing banking crisis and worsening economic conditions could push the Fed into announcing a pause, inflation still remains well above the central bank’s target range, which could attract more monetary tightening measures.

Comments from will be closely watched for more cues on monetary policy.

A hawkish outlook from the Fed could potentially spur more weakness in Asian currencies, which were battered by rising interest rates through 2022. While most Asian central banks have paused their rate hike cycles, more hikes by the Fed could further narrow the gap between risky and low-risk yields.

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