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Asian currencies stabilize as US dollar retreats from 3-month peak, but concerns about interest rates linger.

Asian Currencies Stabilize as Dollar Retreats from Recent Highs

Asian Currencies Steady After Recent Losses

Most Asian currencies remained stable on Wednesday, recovering after recent losses as the dollar pulled back from its three-month peak. Despite this, concerns about potential long-term increases in U.S. rates continued to keep traders on edge.

Regional Currencies Recovering from Recent Setbacks

Regional currencies had experienced significant losses in the past three sessions due to strong U.S. economic data and hawkish comments from Federal Reserve officials. This led to a surge in the dollar, which hovered near its highest levels since early November. Both the and declined by approximately 0.1% during Asian trade.

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Impact of Higher U.S. Rates on Asian Units

With the market no longer anticipating rate cuts in March and May, Asian currencies are likely to face more pressure in the coming weeks while the dollar is expected to remain strong. The appeal of high-yielding assets is diminished by higher U.S. rates.

Upcoming U.S. Data and Its Effect on Interest Rates

The U.S. data for January, scheduled for release next week, is expected to provide further insight into the direction of interest rates.

Outliers Among Asian Currencies

The experienced a 0.1% increase, continuing its strong performance from the previous session after the warned of potential further rate hikes due to persistent inflation. The stabilized after hitting a 1-½ month low earlier in the week, amid ongoing uncertainty over the Bank of Japan’s plans to tighten policy. The remained largely unchanged, lagging behind its regional counterparts, as concerns over China’s economic health persisted.

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Impact of Chinese Economic Data on the Yuan

Chinese for January is expected to offer little support to the yuan, with the data scheduled for release on Thursday, prior to the week-long Lunar New Year holiday.

Stable Performance of Other Asian Units

Most other Asian units maintained a stable performance, with both the and experiencing a 0.1% increase after some losses earlier in the week.

Indian Rupee Outlook and RBI’s Role

The saw a 0.1% increase, breaking just below the 83 level against the dollar. The focus remains on a scheduled for this Thursday, with the central bank expected to maintain interest rates. However, the RBI’s outlook on inflation and economic growth will be closely monitored.

Expectations for the Indian Rupee

A Reuters poll indicated that analysts anticipate some strength in the rupee this year, supported by the RBI. Despite India’s robust economic growth over the past two years, the Indian currency remains close to record lows.

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