Asia FX weakens as dollar recovers from 3-day losses; rate cuts in focus By Investing.com

Investing.com– Most Asian currencies weakened on Thursday as the dollar rose from seven-month lows on bargain buying, although traders remained largely biased against the greenback on expectations of rate cuts interest.

The Japanese yen softened after posting strong gains this week, although sentiment towards Japan was supported by positive purchasing managers’ index data.

Broader Asian currencies also had some gains this week amid growing belief that the Federal Reserve will begin cutting interest rates in September. But weak labor market data on Wednesday dampened risk sentiment somewhat as fears of a US recession came back into play.

Dollar recovers from 7-month lows; rate cuts, recession in focus

And both rose 0.2 percent in Asian trade, rebounding from three days of steep losses that sent the greenback to seven-month lows.

The dollar’s weakness came amid growing bets on a September interest rate cut, with the Fed’s late-July meeting released on Wednesday showing most policymakers favor lower rates.

A sharp downward revision to US payrolls data for the year to March 2024 boosted the case for lower interest rates. But the revision also sparked renewed concerns that a slowdown in the labor market signaled a U.S. recession, especially as wage data in recent months also showed weakness.

The focus is now on a Friday address at the Jackson Hole Symposium for more clues on the economy.

Japanese yen holds as PMI points to services growth

The Japanese yen fell slightly on Thursday but held on to much of its run-up this week as economic data fueled increased bets on more interest rate hikes by the Bank of Japan. The pair settled in the middle of the 145 yen level.

Purchasing managers’ index data showed that Japan rose steadily for a second month in a row, helping to offset the contraction in .

The strength in the services sector was also driven by increased domestic demand as private consumption rose on the back of rising wages. This in turn presented a higher outlook for inflation – which could spur more interest rate hikes from the BOJ.

The Japanese is scheduled for Friday and is expected to provide more clues on the economy.

Broader Asian currencies were lower as markets weighed the prospect of a US recession against lower interest rates.

The Chinese yuan was flat, while the South Korean won rose 0.2 percent after interest rates kept on hold and signaled the prospect of a rate cut later this year.

The Australian dollar pair was down 0.1%, cool after a recent pullback, while the Singapore dollar pair was up 0.1%.

The Indian rupee pair rose slightly and remained close to a record high.