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On Friday, majority of the Asian currencies had minimal movement showcasing a largely restrained weekly performance. This came as investors believed that the Federal Reserve will maintain the U.S. interest rates, ruling out any early cuts in the year.
Asian Currencies Unmoved by Dollar's Overnight Losses
Since the U.S. dollar experienced a drop from its three-month peak triggered by an unexpected drop in January's retail sales, Asian currencies did not react significantly. However, the bulk of the dollar’s fall was tempered following a warning from Raphael Bostic, the President of the Federal Reserve Bank of Atlanta. He stated that interest rate cuts may take longer than expected from the U.S. central bank, with uncertainty still looming on whether inflation would revert to its 2% annual target.
Dollar Index Sees Uptick
In alignment with Bostic's statements, the dollar index and the dollar index futures each climbed 0.1% during Asian trading, marking about 0.3% gain for the week- their fifth consecutive week of improvements. Additionally, the U.S. consumer price index data released a few days ago indicated an unanticipated boost in January’s inflation.
Expectations on U.S. Interest Rates
Later in the day, it is anticipated that the U.S. producer price index inflation data and an address by San Francisco Fed President Mary Daly will provide more insights into the path of U.S. interest rates. However, the US CPI data had already led traders to reconsider their expectations for the Fed to reduce interest rates as early as May or June. This expectation has considerably impacted the Asian currencies, setting them up for a subdued weekly performance.
Performance of Asian Currencies
The Japanese Yen was the weakest performer in Asian currencies this week, depreciating by 0.6% and trading around a three-month low. This was primarily due to speculations that the Bank of Japan may postpone its interest rate hikes planned for this year, after the country unexpectedly entered a technical recession in the fourth quarter. Despite trading at 150.2 to the dollar, anticipated government intervention prevented bigger losses for the Yen.
Other currencies like the Australian dollar and the Singapore dollar fell 0.2% and 0.1% respectively, despite the data showing an above-expected rebound in Singapore’s key non-oil exports in January. The South Korean won depreciated by 0.4%, whereas the Indian rupee remained stagnant around the 83 level.
Impact of Fed's Interest Rate on Asian Markets
The early speculations of the Fed’s interest rate cuts had significantly impacted Asian markets earlier this year. The prospect of enduring high U.S. rates presented little reprieve for the Asian currencies.
