Asia FX falls, dollar strong as rate-cut hopes retreat before inflation test
Investing.com-- Most Asian currencies fell on Monday, while the dollar steadied near three-week highs as stronger-than-expected U.S. payrolls data saw traders scale back bets that the Federal Reserve will cut interest rates early.
The payrolls reading put upcoming U.S. inflation data squarely in focus, as markets sought more cues on when the central bank could potentially begin trimming rates this year.
Regional currencies clocked steep losses after Friday’s reading, and saw little relief on Monday as traders hunkered down before a string of inflation readings from major Asian economies this week.
The dollar index and dollar index futures both firmed slightly in Asian trade on Monday, and remained within sight of a three-week high.
The greenback clocked a strong gain in the first week of 2024, as traders grew uncertain over when the Fed could begin trimming interest rates. This was exacerbated by a stronger-than-expected nonfarm payrolls reading on Friday, with strength in the labor market giving the central bank more headroom to keep rates higher for longer.
The CME Fedwatch tool shows traders pricing in a nearly 63% chance for a 25 basis point cut in March, down from the 74% chance seen last week.
U.S. consumer price index (CPI) data for December is due this Thursday, and is expected to show some pick-up in inflation- a scenario that bodes poorly for early rate-cut bets.
Asian trading volumes were somewhat held back by a holiday in Japan on Monday. The yen rose 0.1% after nearly sliding to 145 against the dollar on Friday.
The Japanese currency also logged its worst weekly loss since late-2022 after an earthquake battered central Japan. Rebuilding and stimulus efforts in the wake of the disaster are expected to
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