The greenback saw some safe haven demand following a rout in risk-driven equity markets, as investors locked-in profits after a recent rally.
Asian currencies also saw some pullback after logging strong gains from over the past week, after the Fed said it was done raising interest rates and flagged deeper rate cuts in 2024.
This saw traders pricing in the possibility that rate cuts could come as soon as March 2024. But several Fed officials warned against bets on early rate cuts, given that U.S. inflation was still well above the Fed’s 2% annual target.
While Fed Fund futures showed traders still pricing in an over 60% chance of a 25 basis point rate cut in March, some uncertainty over the potential cuts stalled a rally in Asian markets.
The Japanese yen rose 0.4% on Thursday, recovering a measure of steep losses earlier this week after the Bank of Japan maintained its ultra-dovish course. But the yen still remained in sight of a five-month high touched last week.
Focus this week is on Japanese consumer price index inflation due on Friday.
The Australian dollar added 0.3%, recovering from steep losses in the prior session and remaining within sight of an over four-month high.
The rate-sensitive South Korean won added 0.1%, while the Singapore dollar rose 0.2%.
Regional trading volumes remained languid as the year-end holiday season kicked in.
The dollar index and dollar index futures both fell slightly in Asian trade on Thursday, but were trading above a near five-month low hit earlier in the week.
The greenback saw some strength this week as markets remained uncertain over just when the Fed will begin monetary easing. While a string of analysts flagged a March 2024 cut, Fed officials suggested the bank will keep rates higher until inflation shows clearer signs of coming within its target range.
Sticky inflation and resilience in the U.S. economy give the Fed more headroom to keep rates higher for longer.
Still, Goldman Sachs expects the Fed to cut rates at least five times in 2024.
The Chinese yuan fell 0.15% on Thursday and continued to lag broader Asian currencies as markets remained on edge over China’s economic prospects.
The People’s Bank of China kept its benchmark loan prime rate on hold at record lows this week, as it struggles to maintain a balance between fostering economic growth and stemming further losses in the yuan.
But the central bank also set a weaker daily midpoint for the yuan on Thursday, with the currency remaining under pressure from a string of weak economic readings from China for November.
The yuan also remained well above the psychologically important 7 level against the dollar.
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