Asia FX upbeat as rate cut bets dent dollar; yen on intervention watch

July 4, 2024 6:45 am– Most Asian currencies firmed on Thursday as increased expectations of interest rate cuts by the Federal Reserve dented the dollar, while a fragile yen kept traders on guard over potential government intervention.

But gains in Asian currencies were tempered by hawkish signals from the minutes of the Fed’s June meeting, while anticipation of key payrolls data on Friday also kept sentiment cautious.

Japanese yen gains some ground, but intervention concerns remain

The Japanese yen took some relief from weakness in the dollar, with the pair falling 0.2% after nearly crossing the 162 level on Wednesday. 

The pair was trading well above 160- the level that had last attracted government intervention in May. With Japanese officials reiterating their commitment to defend the yen, traders remained on guard over any potential intervention in the coming days.

Traders speculated that the government would take advantage of low trading volumes during the July 4 U.S. market holiday to intervene. The government’s intervention in May had taken place during a Japanese market holiday. 

Dollar sinks tracking weak labor data, rate cut bets grow

The and both fell about 0.1% in Asian trade on Thursday, extending steep overnight declines.

Softer-than-expected data and a weak purchasing managers index reading on ramped up bets on a cooling U.S. economy, which traders bet will push the Fed into cutting interest rates sooner.

Soft labor data also spurred bets on a weak reading on Friday.

Traders ramped up bets that the Fed will enact a 25 basis point cut in September. The showed traders pricing in a nearly 66% chance of a September rate cut, up from 59% seen a day ago. 

Still, the of the Fed’s June meeting showed policymakers remained unconvinced that inflation was coming down to an extent where rate cuts will be viable. Some officials still saw the need for higher interest rates to bring down inflation.

Several Fed officials, most notable Chair Jerome Powell, also warned this week that while the bank had made some progress towards combating inflation, it still lacked the confidence to begin trimming rates.

Still, most Asian currencies advanced against a softer dollar. The Australian dollar’s pair rose 0.2% even as data showed the country’s trade balance shrank more than expected in May, due to weak exports.

The Chinese yuan’s pair was flat, remaining close to seven-month highs amid waning confidence in the Chinese economy.

The South Korean won’s pair fell 0.4%, while the Singapore dollar’s pair fell 0.1%.

The Indian rupee’s pair steadied after coming close to record highs this week. 

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