Asia FX muted, dollar rebounds before Powell speech


Most Asian currencies kept to a tight range on Friday, while the dollar rebounded from 3-½ month lows in anticipation of more cues on interest rates from Federal Reserve Chair Jerome Powell.

Regional currencies cooled slightly after a stellar rally through November, amid growing conviction that the Fed was done raising interest rates. The central bank is now widely expected to begin trimming rates in 2024, with markets now seeking more cues on the timing of the rate cuts.

Some mixed economic readings from Asia also provided middling cues to markets. China’s yuan was flat after a private survey showed that manufacturing activity rebounded unexpectedly in November.

But the reading contrasted with official data released on Thursday, which showed a sustained contraction in the manufacturing sector.

The Australian dollar inched higher as data showed manufacturing activity contracted as expected in November. Focus was now on a Reserve Bank of Australia meeting next week, where the central bank is widely expected to keep rates on hold amid easing inflation.

South Korea’s won was muted following mixed trade and manufacturing data, while the Indian rupee remained close to record lows, even as data showed the Indian economy grew faster than expected in the September quarter.

Reserve Bank of India meeting is also on tap next week, with the bank set to hold rates steady.

Dollar steady after rebounding from 3-½ month lows, Powell awaited

Uncertainty over the Fed’s potential pivot helped the dollar recover sharply from its lowest levels since mid-August.

Overnight data also showed that the PCE price index– the Fed’s preferred inflation gauge- remained comfortably above the central bank’s 2% target in October.

The dollar index and dollar index futures fell slightly in Asian trade, after surging 0.7% on Thursday.

Powell is set to speak at two separate events on Friday, with any changes to the Fed Chair’s rhetoric largely in focus after several other Fed officials suggested that the central bank was done raising interest rates.

Powell has largely maintained the rhetoric that rates will remain higher for longer, although that trend will also depend on the path of inflation. Several Fed members noted this week that inflation had fallen substantially this year, although it still remained above the central bank’s target range.

The dollar was also nursing steep losses for November, amid growing conviction that the Fed was done raising interest rates. Asian currencies had rallied through the month on the same notion.


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