Most Asian currencies were subdued on Friday as the dollar strengthened ahead of next week’s Federal Reserve rate decision, while disappointing stimulus signals from a key meeting in China weighed on the yuan.
Investors adopted a cautious stance, refraining from making significant moves ahead of the U.S. Federal Reserve’s meeting next week, where a 25 basis point rate cut is widely expected. Concerns about the long-term path of interest rates dampened market sentiment, providing support to the dollar.
The US Dollar Index rose 0.2%, while US Dollar Index Futures edged up 0.1% during Friday’s Asian trade.
Chinese yuan slides as CEWC falls short of expectations
The Chinese yuan weakened, with the onshore USD/CNY pair rising 0.2%, hovering near a two-year high, while the offshore USD/CNH pair gained 0.1%.
Following China’s two-day Central Economic Work Conference (CEWC) on Thursday, markets were disappointed by the lack of bold stimulus measures that investors had hoped would boost domestic demand.
Although China pledged to increase its budget deficit, issue more debt, and ease monetary policy to sustain economic growth amid expected trade tensions with the U.S., markets felt these measures were unlikely to provide the immediate economic boost needed to address China’s deflationary pressures.
The yuan has been under pressure in recent months, with consecutive weekly declines due to the threat of U.S. tariffs under incoming President Donald Trump. It is on track for a slight decline this week.
“In light of our revised outlook on tariffs, we have become more cautious about the near-term CNY outlook. A potential easing of trade tensions under Trump could help the yuan recover, but any tariff developments could spur further depreciation,” ING analysts noted in a recent report.The dollar is on track for its best week in over a month, despite traders anticipating a Federal Reserve rate cut next week. However, higher-than-expected producer price index data and largely in-line consumer inflation for November have led markets to expect a slower pace of rate cuts in 2025.
The Thai baht saw the biggest losses in Asia, with its USD/THB pair rising 0.8%, while the Indonesian rupiah’s USD/IDR pair gained 0.3%.
The South Korean won’s USD/KRW pair edged up 0.2%, ahead of a planned parliamentary vote on impeaching President Yoon Suk Yeol over his attempt to impose martial law.
The Japanese yen’s USD/JPY pair rose 0.3% following reports that the Bank of Japan is likely to keep interest rates unchanged next week, contrary to earlier expectations of a rate hike.
In other regions, the Singapore dollar’s USD/SGD pair saw a slight increase, while the Australian dollar’s AUD/USD pair remained mostly unchanged.
The Indian rupee’s USD/INR pair showed little movement, staying near an all-time high reached on Thursday.
