Anna 
Asian currencies displayed limited movement on Thursday, consolidating losses from the previous session as the dollar rebounded from near five-month lows amidst uncertainty regarding the Federal Reserve’s timeline for interest rate adjustments.
The greenback experienced safe-haven demand in the wake of a sell-off in risk-driven equity markets, where investors sought to secure profits following a recent rally.
Despite recent strong gains, Asian currencies encountered a pullback as the Fed signaled the conclusion of interest rate hikes and hinted at potential deeper rate cuts in 2024. Traders, pricing in the likelihood of rate cuts as early as March 2024, faced uncertainty as several Fed officials cautioned against premature assumptions, emphasizing that U.S. inflation remained well above the Fed’s 2% annual target.
While Fed Fund futures reflected a 60% probability of a 25 basis point rate cut in March, lingering uncertainty over the potential cuts hindered a sustained rally in Asian markets.
On Thursday, the Japanese yen regained 0.4%, recovering from earlier losses this week following the Bank of Japan’s maintenance of an ultra-dovish course. The yen, although rebounding, remained within sight of a five-month high reached the previous week. Investors are closely eyeing the Japanese consumer price index inflation due on Friday.
The Australian dollar added 0.3%, recovering from recent losses and staying within reach of a four-month high. Meanwhile, the rate-sensitive South Korean won edged up by 0.1%, and the Singapore dollar rose by 0.2%. However, regional trading volumes remained subdued as the year-end holiday season commenced.
While the dollar index and dollar index futures saw slight declines in Asian trade on Thursday, they remained above the near five-month low recorded earlier in the week. The greenback showed strength as markets grappled with uncertainty regarding the timing of the Fed’s monetary easing. Analysts have suggested a potential rate cut in March 2024, but Fed officials indicated a preference for maintaining higher rates until inflation aligns with their target range, citing sticky inflation and resilience in the U.S. economy.
Goldman Sachs, however, anticipates the Fed making at least five rate cuts in 2024.
The Chinese yuan fell by 0.15% on Thursday, trailing broader Asian currencies as markets remained cautious about China’s economic outlook. The People’s Bank of China kept its benchmark loan prime rate unchanged at record lows this week, struggling to balance economic growth with preventing further yuan depreciation. Despite economic concerns, the yuan remained above the psychologically significant 7 level against the dollar, with the central bank setting a weaker daily midpoint for the currency on Thursday.
