Asian forex firms with yen near 8-month high; dollar down for low-rate bets by Investing.com

Investing.com– Asian currencies strengthened on Friday, while the dollar retreated as markets bet the Federal Reserve will begin an easing cycle next week, focusing squarely on the size of a potential interest rate cut.

The Japanese yen was the best performer among its Asian peers, nearing its strongest level since early January amid lingering expectations for a Bank of Japan call.

Dollar heads for second weekly loss on low-rate bets

Both and fell 0.3 percent in Asian trade, extending losses from the previous session.

The greenback was set for mild weekly losses – a second week in the red – as traders held on to interest rate cut expectations despite strong inflation readings this week.

While inflation metrics initially saw bets shift toward a 25 basis point cut by the Fed next week, some weak labor market data is putting bets on a 50 basis point cut back into play.

Markets are pricing in a 56% chance the Fed will cut rates by 25 basis points next week, along with a 44% chance for a 50bps cut, it showed.

The central bank is expected to begin an easing cycle starting next week, following dovish signals from a host of Fed officials in recent weeks. Analysts expect at least 100 bps of cuts this year from the central bank, with two more meetings left in the year after September.

Lower rates bode well for risk-averse Asian currencies as they free up more liquidity to invest in overseas markets.

Japanese yen nears 8-month high, BOJ calls for caution

The Japanese yen was the top performer in Asia, with the pair falling 0.7% to its lowest level since early January.

A string of dodgy comments from BOJ officials boosted the currency this week, especially as the central bank called for more interest rate hikes.

While weak data on producer inflation slightly undermined that sentiment, a Reuters poll published on Friday showed analysts were positioning for a strong reading next week.

although analysts are uncertain whether the central bank will raise rates again after a 15 bps hike at the end of July.

Broader Asian currencies rose on the prospect of lower US interest rates as well as a weaker dollar.

The Australian dollar rose 0.1%, while the Chinese yuan fell 0.2%.

The South Korean won pair was down 0.5%, while the Singapore dollar pair was down 0.2%.

The Indian rupee lagged against its counterpart, with the pair hovering just below 84 rupees.