Asian currencies traded in a narrow, flat-to-lower range on Thursday, as expectations of a slower pace of U.S. interest rate cuts in 2025 dampened appetite for regional markets.
The Chinese yuan was among the weakest performers, weighed down by purchasing managers index (PMI) data that indicated diminishing effects of recent stimulus measures.
Trading volumes in the region remained thin, with key markets like Japan closed for the New Year holidays.
Meanwhile, the U.S. dollar maintained its strength, supported by forecasts of gradual Federal Reserve rate cuts in 2025. Anticipation of protectionist policies under the incoming Donald Trump administration also bolstered the greenback. Both the dollar index and its futures hovered near their highest levels since November 2022 during Asian trading.
Chinese Yuan Weakens Amid Disappointing PMI Data
The yuan fell on Thursday, with the USD/CNY pair climbing 0.3% to 7.3190—its highest level in over a year.
Caixin PMI data revealed slower-than-expected growth in China’s manufacturing sector for December, reflecting the waning impact of prior stimulus efforts. This follows government PMI data earlier in the week, which also showed subdued manufacturing activity.
The weak PMI readings heightened concerns about a slowing recovery in China’s economy. Despite recent stimulus measures, their effect appears limited. The potential for increased trade headwinds under Trump’s administration could further strain China’s economy, although Beijing is expected to roll out additional fiscal measures to mitigate these challenges.Asia FX Wraps Up 2024 with Losses
Asian currencies largely stabilized on Thursday after enduring significant losses throughout 2024. Much of the decline occurred in recent months, driven by expectations of slower U.S. interest rate cuts and increased protectionist policies, which prompted traders to favor the U.S. dollar.
The Japanese yen was among the hardest hit, pressured by a dovish outlook from the Bank of Japan for 2025. The USD/JPY pair held steady on Thursday, following a surge to a five-month high near 158 yen in earlier sessions.
The South Korean won strengthened slightly on Thursday but remained one of the weakest-performing Asian currencies of 2024. The USD/KRW pair climbed nearly 15% over the year, with heightened domestic political turmoil further weighing on the won.
The Singapore dollar saw its USD/SGD pair decline by 0.2% on Thursday, supported by better-than-expected 2024 GDP growth of 4%. However, growth slowed sharply in the fourth quarter, raising concerns about the island nation’s economic prospects in the coming months.
The Australian dollar recovered slightly, with the AUD/USD pair rising 0.5% after falling to a more-than-one-year low earlier this week. Meanwhile, the Indian rupee slipped, with the USD/INR pair dropping 0.3% after hitting a record high of 86 rupees earlier in the week.
