Most Asian currencies weakened on Friday, with the Japanese yen recovering slightly from a five-month low as strong inflation data only partially countered the dovish outlook from the Bank of Japan.
Regional currencies faced pressure from a broad move into the dollar, which hit its highest level in over a year after the Federal Reserve indicated a slower pace of rate cuts in 2025. The greenback remained in demand despite concerns about a potential U.S. government shutdown.
Both the dollar index and dollar index futures rose slightly in Asian trading, reaching their strongest levels since November 2023. Attention is now focused on the upcoming PCE price index data later on Friday for further guidance on interest rates.
The Chinese yuan weakened to a more-than one-year low after Beijing kept a key lending rate unchanged.
Yen rises from 5-month low on strong CPI; BOJ’s outlook remains dovish
The Japanese yen was one of the better performers on Friday, with the USD/JPY pair falling 0.2% as the November consumer price index inflation data came in slightly stronger than expected.
However, the yen was still recovering from a drop to a five-month low on Thursday, with the USD/JPY pair having surged to 157.93 yen, its highest level since late July.
While the strong CPI data bolstered the case for a future rate hike by the Bank of Japan, comments from Governor Kazuo Ueda on Thursday suggested that any hike will likely come later in 2025. The central bank kept interest rates unchanged and forecast continued inflation, but Ueda’s remarks about monitoring spring labor wage negotiations indicated that a rate hike may not occur until at least March.Recent weakness in the yen has sparked renewed speculation about potential government intervention, following verbal warnings from officials regarding the yen’s decline.
Chinese Yuan Hits 1-Year Low; PBOC Keeps Loan Prime Rate Unchanged
The Chinese yuan’s USD/CNY pair rose by 0.2%, reaching its highest level since November 2023.
As expected, the People’s Bank of China kept its benchmark loan prime rate unchanged on Friday, with the central bank having limited room to cut rates further due to ongoing yuan weakness.
Despite looser monetary policy, support for the Chinese economy has been limited over the past year, and Beijing is expected to increase fiscal spending in the coming year to stimulate growth.
Broader Asian currencies mostly weakened on Friday and were grappling with significant declines for the week, as traders remained focused on the dollar. The Australian dollar’s AUD/USD pair fell 0.2%, hitting a two-year low, while the South Korean won’s USD/KRW pair rose 0.4%, approaching its highest point in nearly 15 years.
The Singapore dollar’s USD/SGD pair remained flat, while the Indian rupee’s USD/INR pair steadied after reaching a record high above 85 rupees earlier this week.
