Asian forex firm, dollar slips as Fed rate cut looms By Investing.com

Investing.com– Most Asian currencies strengthened on Wednesday, while the dollar retreated as markets braced for an expected interest rate cut by the Federal Reserve later in the day.

Market holidays in Hong Kong and South Korea limited overall volumes, while the Chinese yuan weakened as onshore trading resumed after a prolonged hiatus.

The Japanese yen was the best performer in Asia as it rebounded sharply from some overnight losses against the greenback. The yen remained within sight of the 2024 highs reached earlier this week with a Bank of Japan meeting later this week.

Dollar is low, Fed interest rate cut in focus

And both were down 0.1 percent each in Asian trade before a two-day close later in the day.

The greenback found some strength on Tuesday after stronger-than-expected data, although it still held onto most of its recent losses.

The dollar was mainly pressured by expectations that the Fed will cut its first interest rate in more than four years on Wednesday, likely signaling the start of an easing cycle that could see rates fall by at least 100 basis points by the end of the year 2024.

But markets were somewhat divided on how much the Fed will cut interest rates. Traders were seen pricing in a 64% chance for a 50 basis point discount and a 36% chance for a 25bps discount.

Recent signs of resilience in the US economy – as seen with strong retail sales and inflation data – could give the Fed less impetus to cut rates sharply. But on the other hand, recent signs of weakness in the labor market could push the Fed to adopt deeper cuts.

Still, the prospect of lower rates bodes well for Asia’s high-yield, high-risk currencies and is likely to spur capital flows into the sector in the coming months.

Japanese yen strong, BOJ on notice

The Japanese yen was the top performer in Asian trade as it bounced back from losses on Tuesday. The pair fell 0.7 percent to 141.36 yen, remaining within sight of a more than nine-month low earlier this week.

The yen was supported by expectations that the BOJ will issue a driver note then, although analysts are not sure if it will raise interest rates again.

However, a host of BOJ officials have signaled plans to raise rates further in tandem with higher inflation.

Japanese also follows on Friday.

Broader Asian currencies edged higher in anticipation of the Fed’s decision. The Australian dollar rose 0.1% while the Singapore dollar fell 0.2%.

The Chinese yuan rose 0.1 percent as onshore trade resumed after a long weekend, with sentiment toward China weighed down by a string of weak economic readings for August.

The Indian rupee pair settled around 83.773 rupees after retreating further from record highs hit in early September.