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Asian FX stable, dollar unchanged as high inflation reduces expectations for interest rate cuts.

Asian Currencies Remain Stable as Dollar Holds Steady

Asian Currencies and Dollar Trade

Most Asian currencies remained stable on Monday, while the dollar held steady near three-month highs. This was due to more signs of sticky U.S. inflation, which led traders to largely phase out expectations of early U.S. interest rate cuts.

Sticky U.S. Inflation

The U.S. dollar and Asian currencies hovered near three-month highs in Asian trade following higher-than-expected inflation data for January. This has raised concerns about the possibility of early U.S. interest rate cuts in 2024.

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Market Outlook

Chinese markets resumed trade cautiously, as traders waited to see if a spending boost during the week-long Lunar New Year holiday will persist in the coming weeks. Broader Asian units also kept to a flat-to-low range, reflecting the cautious sentiment in the market.

Central Bank Actions

The yuan fell 0.1% and remained in sight of a three-month low, although further losses were limited by a strong daily midpoint fix from the People’s Bank of China. The central bank is also expected to keep its benchmark unchanged on Tuesday, leaving the rate at record lows.

Australian Dollar and Japanese Yen

The Australian dollar rose 0.1% in anticipation of the Reserve Bank of Australia’s interest rate decision. Meanwhile, the Japanese yen flitted around the 150 level to the dollar, as traders remained wary of potential government action in currency markets.

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Market Concerns

Recent data showed that the Japanese economy contracted in the fourth quarter of 2023, adding to concerns about the economic outlook. This has led to increased market volatility and uncertainty.

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