Asia FX muted, dollar dull as rate-cut bets persist despite sticky CPI
Investing.com-- Most Asian currencies tread water on Friday, while the dollar saw little strength as traders looked to U.S. interest rate cuts this year despite a stronger inflation reading for December.
Some positive data from China also helped sentiment towards the region, as Chinese exports grew more than expected, while consumer price index (CPI) inflation picked up slightly in December.
The Chinese yuan rose 0.1%, while the Australian dollar — which has heavy trade exposure to China, added 0.3%.
The Japanese yen firmed 0.3% after recovering sharply against the dollar on Thursday. Markets still expect the Bank of Japan to reiterate its ultra-dovish stance later this month.
Other data also pointed to sustained weakness in the Japanese economy, with the country’s current account falling more than expected in November.
The U.S. dollar took little support from overnight data that showed U.S. CPI inflation grew slightly more than expected in December which, coupled with recent signs of resilience in the labor market, gives the Fed less impetus to begin trimming rates early.
The dollar index and dollar index futures fell 0.1% each in Asian trade after ending Thursday’s session unchanged.
But traders appeared to have increased their bets that the Fed will begin cutting rates by as soon as March, at least according to the CME Fedwatch tool. The tool showed traders pricing in a 70.2% chance for a 25 basis point cut in 2024, up from the 64.7% chance seen a day ago.
Bets for an early rate cut persisted even as several Fed officials pushed back against such expectations, given that inflation remained sticky and well above the central bank’s 2% annual target.
“We are halfway through January, and markets are still pricing in a 70%
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