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Asia’s foreign exchange nurses significant declines as the dollar strengthens ahead of Powell’s speech.

Asian Currencies Muted as Dollar Firms Ahead of Powell Speech

Asian Currencies Struggle as Dollar Strengthens

Most Asian currencies remained subdued on Thursday, following significant losses overnight as the dollar gained momentum, tracking a surge in Treasury yields. This cautious sentiment prevails as traders eagerly await Federal Reserve Chair Jerome Powell’s highly anticipated address.

Israel-Hamas Conflict and Bond Market Concerns Weigh on Sentiment

Sentiment in the market remains fragile due to the ongoing Israel-Hamas conflict, which has left traders cautious about risk-driven assets. Additionally, concerns about rising interest rates have caused turmoil in the bond market, further dampening investor confidence.

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Dollar Benefits from Uncertainty

The dollar has benefited from this uncertainty, with both the euro and yen experiencing slight gains in Asian trade. These currencies rose approximately 0.3% overnight and are approaching an 11-month peak.

Focus on Powell’s Speech

All eyes are now on Powell’s upcoming speech at the Economic Club of New York. Given the recent surge in inflation, it is widely expected that Powell will reiterate his stance on higher interest rates.

Weakening Japanese Yen

The Japanese yen remained muted on Thursday, hovering near the 150 level against the dollar. This level is believed to trigger currency market intervention by the Japanese government. Despite unexpected improvements in Japan’s economic indicators, the yen received little support, as the overall economic climate remains uncertain.

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Australian Dollar and Indonesian Rupiah Face Challenges

The Australian dollar was the worst performer of the day, experiencing a 0.6% loss. This decline was driven by cooling economic indicators, which may deter the Reserve Bank of Australia from raising interest rates. The Indonesian rupiah also weakened, shedding 0.2% as the central bank maintained its interest rates for the fifth consecutive meeting. Furthermore, a spike in oil prices added pressure to the South Asian currency, pushing it closer to record lows.

Chinese Yuan Faces Market Jitters amid GDP Growth

The Chinese yuan traded sideways on Thursday as the People’s Bank of China made no changes to its daily midpoint from the prior session. Despite positive GDP growth in the third quarter, concerns about a potential property market default in China have caused the yuan to depreciate. This default, initiated by Country Garden Holdings, could trigger a series of defaults in the developer’s foreign debt and lead to a significant debt restructuring in China’s property market. As the property market accounts for a quarter of local economic activity, a large-scale default would have adverse effects on the overall economy.

Focus on PBOC’s Decision

This week also brings attention to the People’s Bank of China’s decision, although the central bank is expected to keep interest rates unchanged.

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