Investing.com – Most Asian currencies were in a tight range on Friday, while the dollar headed into a negative week ahead of key U.S. non-farm payrolls data, which is expected to provide more signals on the path to U.S. interest rates.
The data comes just days after the Federal Reserve kept interest rates steady and defied expectations of a rate cut in March. However, Federal Reserve Chairman Jerome Powell sounded somewhat bullish on the U.S. economy, pushing investors toward risk-on assets despite the prospect of higher and longer-term interest rates.
This led to traders selling off the dollar after a brief rebound. On Friday, quotes remained unchanged in Asian trading, and this week they will lose about 0.4%.
The trade supported most Asian currencies, with the rate (a key indicator of risk appetite in Asian markets) rising 0.4%. The Australian dollar recovered from more than a month’s low ahead of next week, when the central bank is expected to keep interest rates steady.
and inflation data released this week showed that while Australian inflation is falling, it still remains well above the RBA’s target range.
Dollar losses provided some relief for Asian currencies after a rough start to 2024, with most regional units posting sharp losses in January.
The index remained unchanged after significantly underperforming its regional peers in January. But the yen has found some strength in recent sessions amid growing belief that the Bank of Japan is close to abandoning its ultra-dovish policies this year.
The 0.2% rise, the data showed, rose slightly less than expected in January, although the index traded sideways.
It was among the best performers this week, rebounding sharply from near-record lows after the ruling BJP unveiled a surprisingly conservative annual budget that bodes well for India’s bloated fiscal deficit.
The index remained unchanged following a stronger-than-expected midpoint forecast from the People’s Bank of China. Yuan losses were tempered by reports of PBOC intervention in foreign exchange markets following a series of disappointing Purchasing Managers’ Index readings in January.
Data showed that China’s economic recovery showed little sign of improvement in the first month of 2024.
Markets expect a rate cut in May as non-farm payrolls nearer
After the Fed largely downplayed bets on a March interest rate cut, traders began pricing in a 25 basis point cut in May.
Traders place the likelihood of a rate cut in May at more than 60%, with analysts also expecting the Fed to cut interest rates at least four more times after May.
While this scenario bodes well for risk-focused Asian currencies, the Fed has given no indication that it will cut rates significantly in 2024. The central bank reiterated that its plans to cut rates would be largely dictated by the trajectory of inflation. , which was still sticky.
The data is expected to provide more insight into the labor market. The Fed also cited a cooling labor market as one of the main factors driving interest rates lower.