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Asian currencies weaken, dollar strengthens as traders adjust expectations for interest rate cuts.

Asian Currencies Weaken as Dollar Gains

Asian Currencies Weaken

Most Asian currencies weakened on Monday, while the dollar steadied at a near two-month high as strong labor market data and hawkish signals from the Federal Reserve saw traders reconsider bets on early interest rate cuts.

Resilience in Labor Market

Regional currencies were reeling from steep losses on Friday after U.S. data read much higher than expected for January, pointing to continued resilience in the labor market.

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Steady Monetary Policy

Fed Chairman Jerome Powell said in a late-Sunday interview on CBS 60 Minutes that resilience in the U.S. economy gave the Fed more headroom to keep monetary policy steady for the time being. He also flagged a largely data-driven approach to any potential rate cuts.

Impact on Currency Markets

Powell’s comments came just days after the Fed offered similar signals during its first meeting of 2024, and spurred extended gains in the dollar and Treasury yields.

Market Response

The Australian dollar and Japanese yen both rose 0.1% in Asian trade, and were at their highest levels since early-December.

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Expectations for Rate Cuts

The dollar showed investors pricing in an even lower chance of a rate cut in March, while traders also slashed expectations for a cut in May. Several analysts said they now only expect the central bank to begin trimming rates by June.

Impact on Asian Units

This scenario bodes poorly for Asian units, given that high U.S. rates diminish the appeal of high-yield, risk driven assets.

Concerns Over China

Persistent concerns over China also dented regional currencies, after a private survey showed activity grew less than expected in January.

Market Expectations

Japan’s yen traded just above a two-month low, having clocked steep losses on Friday as traders looked to higher-for-longer U.S. rates.

Market Volatility

The Euro was among the few outliers for the day, rising 0.3%, while the Pound tread water before a due later this week.

Decline in Currency

The Yuan fell 0.2% following weak data for December.

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