Anna 
November 15, 2023 – Asian currencies experienced gains on Wednesday, with the U.S. dollar lingering at over two-month lows. Weaker-than-expected U.S. inflation data fueled speculation that the Federal Reserve might conclude its interest rate hikes.
Positive economic indicators and a substantial 600 billion yuan ($83 billion) liquidity injection by the People’s Bank of China contributed to improved sentiment, highlighting signs of resilience in Asia’s largest economy.
The Chinese yuan appreciated by 0.2% to 7.2389 against the dollar, benefiting from a considerably stronger-than-expected daily midpoint fix by the PBOC. The central bank, on Tuesday, maintained its medium-term lending rates.
Government data revealed that Chinese industrial production and retail sales surpassed expectations in October, suggesting that recent stimulus measures from Beijing were positively impacting segments of the economy.
Other Asian currencies also demonstrated strength, with South Korea’s won rising by 0.4%, while the Taiwan dollar and Singapore dollar increased by 0.3% and 0.1%, respectively. The Australian dollar, however, fell by 0.1%.
The Japanese yen experienced a robust recovery from a one-year low in overnight trade. However, gains were tempered by weaker-than-expected gross domestic product (GDP) data for the third quarter, indicating a contraction more significant than anticipated. This has raised expectations that the Bank of Japan (BOJ) will adopt an ultra-dovish stance to support the economy for an extended period.
While positive for the Japanese economy, this scenario implies more pressure on the yen, which has been impacted by a growing disparity between local and U.S. interest rates over the past year. Traders are also monitoring for potential currency market intervention by Japanese authorities.
The dollar index and dollar index futures stabilized in Asian trade on Wednesday after registering substantial losses overnight. The data revealed that U.S. consumer price index (CPI) inflation in October was below expectations, increasing speculation that the Fed may pause further interest rate hikes.
Persistent inflation has been a significant concern for the Fed in maintaining its hawkish stance, particularly after inflation exceeded expectations in August and September, remaining above the Fed’s 2% annual target in October. However, the Fed’s signal that future rate hikes would depend on the inflation trajectory diminished expectations for an imminent hike.
Despite the prospect of a Fed pause, U.S. rates are expected to stay higher for an extended period, limiting significant gains in Asian markets.
