Anna 
Asian currencies experienced significant losses on Wednesday, as the dollar stabilized following a robust overnight rebound. Market participants, awaiting further cues from the Federal Reserve, began reevaluating expectations for early interest rate cuts. The region’s sentiment remained fragile, influenced by weak economic data from China and a devastating earthquake in Japan.
The Chinese yuan, impacted by dismal purchasing managers index readings for December, declined by 0.1%. However, losses were curbed by a stronger-than-expected midpoint fix from the People’s Bank of China. The Japanese yen remained static as local markets were closed for a week-long holiday.
The dollar index and dollar index futures exhibited a slight decline in Asian trade after a substantial surge of about 0.8% in the previous session. This strengthened the greenback, which is now comfortably trading above a more-than-five-month low reached at the end of 2023.
The dollar’s strength preceded the release of the minutes from the Fed’s December meeting, scheduled for later on Wednesday. Analysts cautioned that the minutes might not be as dovish as market expectations, potentially impacting risk sentiment.
While the Fed indicated a plan to trim rates in 2024, it provided limited cues on the timing of this move. Post-meeting, Fed officials warned against unfounded bets on early rate cuts, emphasizing the relatively hot conditions of inflation and the labor market.
The upcoming nonfarm payrolls data for December, expected on Friday, is anticipated to offer further insights into the labor market. Although projections suggest a cooling trend, the labor market consistently outperformed expectations throughout 2023.
Despite this, the CME Fedwatch tool showed traders assigning nearly a 70% chance for a 25 basis point cut in March 2024. Goldman Sachs forecasts up to five rate cuts by the central bank in the coming year.
Asian currencies, which enjoyed a rally in December, witnessed a sideways trend as risk appetite soured. The Australian dollar remained flat after reaching a more-than-five-month high in late December, while South Korea’s won recorded a 0.2% gain, recovering from the prior session’s sharp decline.
Most regional currencies suffered substantial losses on Tuesday, following the dollar’s rebound. The Indian rupee depreciated by 0.1%, nearing record lows from late 2023, while the Singapore dollar exhibited minimal strength despite data revealing stronger-than-expected economic growth in the fourth quarter.
