Asia FX surges, dollar sinks on Fed’s rate cut signals
Investing.com-- Most Asian currencies rose sharply on Thursday, while the dollar tumbled from two-week highs after comments from the Federal Reserve kept expectations of interest rate cuts largely in play.
The Fed kept interest rates steady on Wednesday and maintained its forecast for a 75 basis point reduction in rates this year. The move, particularly the Fed’s outlook, ramped up appetite for high-yielding, risk-driven assets.
Hawkish signals from some Asian economies also boosted regional currency markets.
The Japanese yen strengthened sharply on Thursday, with the USDJPY pair falling 0.5% from a four-month high to 150.53.
The prospect of U.S. interest rate cuts and a more hawkish Bank of Japan bode well for the yen, which was battered by rising U.S. interest rates over the past year.
Purchasing managers index data for March showed some resilience in the Japanese economy, with manufacturing activity shrinking less than expected, while the services sector grew further.
The BOJ hiked interest rates for the first time in 17 years this week, citing some confidence in the Japanese economy. Analysts said that any more monetary tightening by the central bank will be largely driven by the path of Japan’s economy.
The Australian dollar was the best performer in Asia on Thursday, with the AUDUSD pair surging 0.6%.
Gains in the Aussie were fueled chiefly by a substantially stronger-than-expected reading on the labor market, which also showed unemployment falling to a six-month low.
Labor market strength gives the Reserve Bank of Australia more headroom to keep interest rates higher for longer. This notion helped Aussie bulls to look past less hawkish signaling from the RBA at a meeting earlier this week.
The dollar index
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