Asia FX dips, dollar rebounds as markets question early rate cuts

Investing.com– Most Asian currencies nursed steep losses on Wednesday, while the dollar steadied after a sharp overnight rebound as anticipation of more cues on the Federal Reserve saw markets question expectations for early interest rate cuts. 

Sentiment towards Asia also remained fragile following weak economic data from China and a devastating earthquake in Japan.

The fell 0.1%, with further losses limited by a stronger-than-expected midpoint fix from the People’s Bank of China. The yuan saw renewed weakness this week after dismal readings for December. 

The was static, with local markets closed for a week-long holiday. 

Dollar steadies after stellar rebound, more Fed cues awaited 

The and fell slightly in Asian trade, after surging about 0.8% in the prior session. The greenback was now trading comfortably above a more-than five-month low hit towards the end of 2023.

Strength in the dollar came before the , which were due later on Wednesday. Analysts warned that the minutes may not be as dovish as markets are hoping- a scenario that is likely to dent risk sentiment.

While the Fed signaled in December that it will begin trimming rates in 2024, it gave scant cues on the timing of the move. Fed officials also warned after the meeting that bets on early rate cuts were unfounded, given that inflation and the labor market were still running relatively hot.

data for December is due this Friday, and is also expected to provide more cues on the labor space. While the reading is expected to show more cooling in the jobs market, it has also consistently beaten expectations through most of 2023.

Still, the showed traders pricing in a nearly 70% chance for a 25 basis point cut in March 2024. Goldman Sachs expects the bank to cut rates up to five times this year.

Broader Asian currencies traded sideways, cooling from a rally in December as risk appetite soured. The was flat after racing to a more-than five-month high in late-December, while added 0.2% after falling sharply in the prior session. 

Most regional currencies were also nursing steep losses from Tuesday, following the dollar’s rebound. 

The fell 0.1% and moved back towards record lows hit in late-2023, while the saw little strength even as data showed stronger-than-expected in the fourth quarter.

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