Investing.com – Most Asian currencies fell on Wednesday as rising bets on a slower pace of U.S. interest rate cuts supported the dollar, while the Japanese yen steadied as government officials warned of possible intervention.
Regional markets also faced worsening trade relations between the US and China after Washington added two major Chinese companies to a blacklist of firms linked to the Chinese military.
The move came shortly before President-elect Donald Trump’s inauguration on Jan. 20, when Trump vowed to impose high trade tariffs on China. The Chinese yuan pair stabilized after hitting its lowest level in 17 years earlier this week.
Among other Asian units, the South Korean won rose 0.1% amid ongoing political uncertainty in the country.
The Singapore dollar rose 0.1%, while the Indian rupee stabilized at 85.8 rupees after hitting a record high above 86 rupees last week.
Dollar upbeat on strong labor force and PMI data
Asian trade stabilized on Wednesday after a sharp rise in overnight trade.
The dollar strengthened mainly due to stronger-than-expected November data, which showed the labor market remained resilient. The data comes just days ahead of key December data that should provide clearer signals about the labor market this week.
The strong data also boosted bets that inflation will remain stable in the coming months, giving the Federal Reserve further incentive to gradually cut rates.
The central bank has warned it will significantly slow the pace of rate cuts in 2025 due to concerns about persistent inflation and the strength of the labor market.
Higher, longer-term US interest rates do not bode well for Asian markets, given that they portend smaller rate differentials across regional assets.
Japanese yen stabilizes amid talk of intervention
The Japanese yen hovered near a low of 158 pips on Wednesday after recovering marginally from its weakest level in nearly six months.
The yen reversed its recent losses after government officials verbally warned of possible intervention in the foreign exchange market, prompting traders to be more cautious about selling the Japanese currency.
The prospect of higher US interest rates and the Bank of Japan’s dovish outlook hit the yen during December, pushing USDJPY closer to levels that last prompted government intervention.
Traders view the 160 yen level as a potential point for intervention.
Australian dollar flat as markets weigh mixed CPI data
The Australian dollar pared early losses to trade flat as traders digested mixed inflation data from the country.
Headline inflation was higher than expected in November, while core inflation fell slightly.
The data gave different signals about when the Reserve Bank of Australia might start cutting interest rates, given that core inflation still remains above its target range of 2% to 3%.
Analysts expect the RBA to start cutting rates only in the second quarter, although Wednesday’s data did prompt some to bet on an earlier cut.