Asia FX muted, dollar falls from 3-week high amid rate-cut uncertainty

FxPremiere .com– Telegram FX Signals – Most Asian currencies kept to a tight range on Tuesday, but saw some relief as the dollar was hit with profit-taking before key inflation data that is set to offer more cues on interest rate cuts this year.

Regional currencies marked a weak start to the year as markets questioned the potential for early interest rate cuts by the Federal Reserve. This uncertainty was exacerbated by data showing resilience in the U.S. labor space, which gives the Fed less impetus to begin loosening policy early.

Best Forex Signals Telegram Channels Top 5 Providers for Big Profits in 2024While Asian currencies saw some relief this week, they were still trading largely lower for 2024, after a middling performance in 2023.

Several inflation and economic readings from Asia are also on tap this week- anticipation of which kept buying into regional units limited.

The Japanese yen rose 0.4% as data showed inflation in Tokyo fell closer to the Bank of Japan’s 2% annual target range in December. The BOJ has signaled that it will begin tightening its ultra-dovish policy only after the 2% target is achieved.

But the yen was nursing steep losses in the first week of 2024, as investors bet that rebuilding efforts in the wake of a devastating earthquake in central Japan will delay the BOJ’s plans for a pivot.

The Australian dollar rose slightly as data showed a bigger-than-expected jump in retail sales in November. The reading likely heralds some strength in a consumer price index (CPI) inflation reading for the month, which is due on Wednesday.

The Chinese yuan fell 0.1%, as sentiment towards China showed little signs of improving. Inflation data due this Friday is expected to show a continued deflationary trend in the country, while trade data is likely to show sustained weakness in its export engines.

The South Korean won tread water before a Bank of Korea meeting later this week, where the central bank is widely expected to keep rates steady.

The Indian rupee was muted after central bank intervention helped the currency recover sharply from near record lows over the past week. Indian CPI data is also due this Friday, and is expected to show further easing in inflation.

Dollar eases from 3-week high, inflation awaited for rate-cut cues
The dollar index and dollar index futures steadied in Asian trade on Tuesday after falling from three-week highs in the prior session, as uncertainty over rate cuts in 2024 spurred some profit-taking.

But the greenback still retained a bulk of its gains made over the past week, as investors favored the dollar before key CPI inflation data due this Thursday. The reading is expected to show a mild increase in inflation which, coupled with last week’s strong nonfarm payrolls
United States Nonfarm Payrolls
Latest Release:
Jan 05, 2024
data, casts doubts on bets that the Fed will cut rates by as soon as March 2024.

Fed officials also pushed back on bets on early policy easing. Atlanta Fed President Raphael Bostic said on Monday that with inflation still above the Fed’s 2% target, his bias remained towards tighter policy in the near-term.

While he still expects rates to fall eventually in 2024, he expects them to fall by a total 50 basis points- a much a smaller margin than markets are hoping for this year.

Asia FX muted, dollar falls from 3-week high amid rate-cut uncertainty

US Dollar set for positive week ahead of monthly jobs report – The U.S. dollar gained in early European trade Friday, on course for its strongest week since July ahead of the release of the widely-watched monthly official jobs report.

Why Forex Signals WorkAt 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 102.410, set for a weekly gain of around 1.3%.

Dollar set for strong weekly gains
The dollar has rebounded sharply this week as economic resilience has prompted traders to scale back expectations that the Federal Reserve could begin cutting interest rates as early as the first quarter of 2024.

Data released on Thursday showed that U.S. private employers added far more roles than expected in December, with ADP private payrolls coming in at 164,000 last month, rising from a downwardly revised mark of 101,000 in November.

On Wednesday, separate data from the Labor Department showed that the number of people quitting their jobs fell to its lowest level since 2021 in November, while U.S. job openings also dropped to an almost three-year low.

These numbers serve as a precursor to the all-important nonfarm payrolls report due later this session, which could offer further insight into the U.S. jobs picture.

“The start of 2024 FX trading has been characterised by a modest reversal of some of the very benign, pro-risk trends that dominated late last year,” said analysts at ING, in a note.

“At the heart of the story is the consensus view of a U.S. soft landing, where inflation back on target can allow the Federal Reserve to bring rates back to some kind of normal level without the economy needing to contract sharply.”

Euro edges lower ahead of eurozone CPI
In Europe, EUR/USD traded 0.3% lower at 1.0913, on track for 1% decline in the week, snapping a run of three weeks of gains.

German retail sales fell 2.5% on the month in November, a sharp retreat after a gain of 1.1% the previous month, but the focus Friday will be on the release of the December eurozone CPI later in the session.

The headline prints for France and Germany both crept higher earlier in the week, and the eurozone figure is expected to have risen to 3.0% on an annual basis, up from 2.4% in November.

GBP/USD fell 0.1% to 1.2664, on course for a loss of around 0.5% this week, with sterling helped to a degree by data from Halifax showing average U.K. house prices rose for the third straight month in December to their highest level since March 2023.

Yen close to three-week low
Elsewhere, USD/JPY traded 0.4% higher to 145.12, with the yen close to its weakest level in more than three weeks, as sentiment towards Japan was also dented by a devastating earthquake in the country.

USD/CNY edged lower to 7.1564, with the yuan set to lose nearly 1% this week, as sentiment towards China remained largely negative.

Still, more weakness in the yuan was held back by a series of stronger daily midpoint fixes by the People’s Bank of China.

US Dollar set for positive week ahead of monthly jobs report

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Asia FX muted, dollar falls from 3-week high amid rate-cut uncertainty