Asian FX muted as dollar rises past bumper rate cut; yen falls for BOJ By Investing.com

Investing.com– Most Asian currencies moved in a flat to low range on Thursday as the dollar rose sharply after a massive rate cut by the Federal Reserve was offset by less dovish signals about future interest rates.

The Japanese yen was among the worst performing currencies of the day, falling on dollar pressure and as traders priced in a no-interest-rate move by the Bank of Japan later in the week.

Broader Asian currencies remained dovish following mixed signals from the Fed.

Dollar rises past 50 basis point rate cut, Fed outlook less dovey

The and both rose about 0.4% in Asian trading, extending overnight gains.

The dollar strengthened even after the Fed (the market’s highest hope) reached a range of 4.75% to 5%.

Fed Chairman Jerome Powell said the risks between higher inflation and more weakness in the labor market are now balanced and the central bank is likely to cut rates further as confidence grows that inflation will decline.

However, Powell also said the bank has no plans to return to ultra-low interest rates like those seen during the pandemic, and that the Fed’s neutral rate will now be much higher than in the past.

While traders were still pricing in a rate cut of at least 125 basis points by the end of 2024, Powell’s comments raised expectations that interest rates will be higher than initially expected in the medium and long term.

This idea put pressure on most Asian currencies.

Japanese yen weakens as BOJ looms

The Japanese yen rose 0.6% to 143.12 yen, making it among the worst performers in Asia.

The currency came under pressure from the strong dollar, while traders also counted on local interest rates not to change after Friday.

The central bank is widely expected to leave rates unchanged, but could still signal future rate hikes based on an elevated inflation forecast. Japan is also up for grabs on Friday.

Broader Asian currencies were mostly mixed, with the Australian dollar pair rising 0.4%, supported by a stronger-than-expected reading on the August.

The strong labour market gives the Reserve Bank of Australia more leeway to keep interest rates high for longer, which is more likely to happen if there are signs of persistent inflation in the country.

The Chinese yuan pair reversed early gains and traded sideways, with the focus squarely on a decision by the People’s Bank on Friday. The central bank is expected to leave the LPR unchanged.

South Korea’s won rose 1 percent as local trading resumed after a three-day holiday. The country shrank slightly in August.

The Indian rupee pair was flat, but moved away from the 84 rupee level. The Singapore dollar pair was flat.