The Japanese yen was an outlier for the day, rising 0.3% after Bank of Japan Governor Kazuo Ueda offered more signals on a potential end to the bank’s ultra-dovish policies. But Ueda gave no clear cues on when the BOJ will pivot away from negative rates, and said that easy monetary policy will remain for the near-term.
The yen was also aided by stronger-than-expected trade data for December, with Japanese exports to China rising for the first time in 13 months.
But purchasing managers index (PMI) data for January showed a sustained decline in Japanese manufacturing activity, while services activity grew further in December.
Broader Asian currencies kept to a tight range amid persistent concerns over higher-for-longer U.S. rates. Most regional units had clocked steep losses over the past week as traders began pricing out bets on a March 2024 rate cut.
China’s yuan traded sideways, but saw some strength this week after Bloomberg reported that the Chinese government was planning a massive 2 trillion yuan ($278 billion) support package for local stock markets.
The report fueled optimism that the government will roll out more support for the economy. But broader sentiment towards China remained muted amid persistent concerns over a sluggish post-COVID economic recovery.
Concerns over China kept most Asian currencies under pressure, particularly those with trade exposure to the country.
The Australian dollar fell 0.1%, even as PMI data for January showing some improvement in manufacturing and services activity. The Aussie, which is usually seen as an indicator of broader risk appetite towards Asian markets, was also trading close to seven-week lows.
The Singapore dollar was flat, while the South Korean won lost 0.1%.
The dollar index and dollar index futures both fell 0.1% in Asian trade after surging to their highest levels since early-December in the prior session.
The greenback marked a strong start to 2024 as strong inflation and labor market data saw traders largely scale back expectations for early interest rate cuts by the Fed.
This notion was exacerbated by a series of hawkish comments from Fed officials over the past week.
Focus now turns to fourth-quarter gross domestic product data, due on Thursday, and PCE price index data- the Fed’s preferred inflation gauge- due on Friday. Any signs of resilience in economic growth and inflation give the Fed more impetus to keep rates higher for longer.
The readings also come just days before the Fed’s first meeting for 2024, where the bank is widely expected to maintain rates at 23-year highs.
But the Fed is still expected to eventually begin trimming rates this year, which will keep traders watching for any such cues from the meeting.
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