Anna 
Most Asian currencies traded flat to lower on Friday as the dollar lingered near three-week highs, with markets eagerly awaiting key U.S. labor data for insights into the Federal Reserve’s plans for interest rate cuts. Regional currencies were on track for significant losses in the first week of 2024, witnessing a sharp rebound of the dollar amidst uncertainty over the exact timing of the Fed’s interest rate adjustments.
Traders scaled back expectations of an early rate cut, particularly by March 2024, and the extent of potential cuts remained uncertain. The Japanese yen, being rate-sensitive, was among the worst-hit currencies, set to lose nearly 3% for the week, exacerbated by a devastating earthquake in Japan.
Other Asian currencies also faced substantial weekly losses as traders unwound the late-2023 recovery. The Chinese yuan fell 0.1%, set to lose nearly 1% for the week, reflecting negative sentiment toward China. The South Korean won and Australian dollar were flat and slightly lower, respectively, contributing to the overall trend of regional currencies facing losses.
The Indian rupee hovered near record lows, awaiting government estimates for GDP in 2024. The dollar index and dollar index futures remained close to their highest levels since mid-December, adding about 1.1% for the week, the best performance since July 2023. The dollar’s surge this week stemmed from traders seeking more certainty about the Fed’s early 2024 rate cuts.
With a focus on key nonfarm payrolls data for December, traders were cautious about any signs of unexpected strength in the U.S. labor market, a crucial factor for the Fed’s rate-cut decisions. While a cooling labor sector and subdued inflation are considerations for rate cuts, uncertainty lingers on whether these factors are sufficient to prompt aggressive moves by the central bank in 2024.
The muted performance of Asia currencies in 2023, influenced by high U.S. interest rates, may witness changes in 2024 as the Fed begins trimming rates.
