Investing.com – Most Asian currencies weakened on Friday, while the dollar hovered near its highest level in two years as traders braced for potentially strong non-farm payrolls data due later in the day.
Sentiment in the region was also dampened by weak inflation data from China, while traders speculated on a possible interest rate hike by the Bank of Japan, although this provided only fleeting support for the yen.
The dollar was little changed in overnight trading due to a holiday in the US market. But the dollar remained bullish after aggressive signals from the Federal Reserve earlier this week.
Dollar steady near two-year high as nonfarm payrolls improve
The index and both indices firmed slightly in Asian trade and were just below their highest levels since November 2022.
The focus was on December data due later on Friday to provide more insight into the US economy and interest rates.
The dollar received support from minutes from the Federal Reserve’s December meeting released Wednesday, which reiterated the central bank’s warning that rates will fall at a slower pace this year.
The minutes also showed that policymakers are concerned that President-elect Donald Trump’s expansionist and protectionist policies could fuel inflation in the long term.
Japanese yen weakens despite strong spending data
The Japanese yen reversed Thursday’s gains and fell on Friday, with the pair rising 0.2% and remaining above the 158 yen level.
Stronger-than-expected data released on Friday raised speculation about the Bank of Japan’s January interest rate hike, especially after data released on Thursday showed a larger-than-expected rise in interest rates.
Analysts expect a virtuous cycle of high wages, robust inflation and improving private consumption to spur further rate hikes by the Bank of Japan in the coming months, possibly immediately following the Bank of Japan’s late January meeting.
But the yen saw fleeting support for the idea as it came under pressure from the prospect of US interest rate hikes and extensions.
Asian currencies were broadly weaker on Friday for a similar reason, with traders taking particular heat on the region ahead of the release of non-farm payrolls data.
The Chinese yuan rose 0.3%, with the currency continuing to weaken following weak December inflation data. The prospect of trade tariffs under Trump has also soured sentiment toward China.
The Australian dollar fell 0.2% and was close to a two-year low as mixed inflation data released earlier in the week increased bets that the Reserve Bank would cut interest rates earlier.
The South Korean won rose 0.4% amid ongoing political infighting in the country, while the Singapore dollar rose 0.1%.
The Indian Rupee pair settled below the Rs 86 level.