Asian forex firms, yen strong as dollar pulls back on bets on more rate cut By Investing.com

Investing.com– Asian currencies strengthened on Tuesday, with the Japanese yen near a 2024 peak while the dollar retreated on growing bets that the Federal Reserve will cut interest rates by a wide margin this week.

Regional trading volumes were held back by holidays in China and South Korea. Anticipation of Wednesday’s Fed decision also kept traders on edge.

Dollar retreats 50 bps in focus

And both fell about 0.1 percent in Asian trade, extending losses from the previous session.

The greenback was hurt by growing expectations that the Fed will cut interest rates by 50 basis points at the conclusion of a meeting on Wednesday. The central bank is also expected to begin an easing cycle that could lead to a drop in interest rates by a total of 100 bps by the end of the year.

Traders are pricing in a 68% chance of a 50bps discount and a 32% chance of a 25bps discount, it showed.

Lower rates diminish the dollar’s appeal and push traders to seek higher returns in riskier markets such as Asia. Such a scenario usually bodes well for regional currencies.

But the market was still dealing with weak sentiment on concerns about slowing economic growth in China.

However, most Asian currencies posted some gains on Tuesday. The Australian dollar pair rose slightly, while the Singapore dollar pair was flat.

The Chinese yuan’s offshore pair edged lower as local markets closed for the second consecutive session. But a series of weak economic readings from the country, released over the weekend, challenged the yuan for more weakness.

The Indian rupee pair retreated further from 84 rupees after hitting a series of record highs in August.

Japanese yen firm, BOJ expected

The Japanese yen pair stabilized on Tuesday, remaining close to the lowest levels of the year.

The yen was boosted by the prospect of lower US interest rates, while traders were also seen building long yen positions ahead of Friday.

Analysts do not expect the BOJ to raise interest rates. But policymakers are expected to present a hawkish front and forecast higher interest rates in the face of rising inflation.

Japanese data for August is also due on Friday and is expected to show an increase.