Anna 
Wednesday saw a retreat in most Asian currencies, accompanied by a steadying dollar, as persistent doubts emerged over the Federal Reserve’s signals following the release of robust U.S. inflation data.
In recent sessions, regional currencies faced losses as the dollar rebounded on indications of resilience in the U.S. labor market. November data also revealed a modest uptick in inflation, challenging the notion that the U.S. economy was cooling rapidly, as initially anticipated by the Fed.
This sentiment impacted Asian currencies, compounded by ongoing concerns about an economic slowdown in China. The Chinese yuan, in particular, experienced a 0.1% decline, extending losses following a discouraging inflation report over the weekend. China’s descent into disinflation territory in November signaled continued weakness in the country’s economic conditions.
The Japanese yen mirrored this trend with a 0.1% decline, retracing gains from a recent rally triggered by reports indicating the Bank of Japan’s reluctance to tighten its ultra-dovish policy. While a Bank of Japan meeting is on the horizon, expectations lean towards no adjustments to negative interest rates.
The Australian dollar and Singapore dollar both shed 0.1% and 0.2%, respectively, reflecting caution among investors ahead of the Federal Reserve’s announcement. The South Korean won faced a 0.4% drop, while the Malaysian ringgit led Southeast Asian losses with a 0.5% fall.
Despite a flat performance, the Indian rupee took minimal cues from a robust inflation reading for November. The reading aligned with a Reserve Bank of India warning about an imminent increase in inflation due to higher food prices.
As the Fed prepared to conclude its meeting, the dollar index and dollar index futures experienced slight gains in Asian trade. While markets generally expected the Fed to maintain interest rates, uncertainty loomed regarding the central bank’s outlook for 2024. Strong labor market data and persistent inflation above the Fed’s 2% target fueled speculation about potential shifts in rhetoric by Fed Chair Jerome Powell, prompting traders to scale back bets on a March interest rate cut.
The possibility of any hawkish signals from the Fed raised concerns of a sharp unwinding in risk-driven assets that had surged over the past month amid optimism surrounding a Fed pivot.
