The dollar stabilised in Asian trade, with the dollar index and dollar index futures hovering around 101
Most Asian currencies were flat on Friday, while the dollar held on to recent gains as markets dropped before a series of central bank meetings this week, most notably the Federal Reserve.
Indications of more policy support in China failed to lift sentiment, with uncertainty over the Fed’s plans for future rate actions keeping investors away from risk-driven assets.
The Fed is still broadly expected to raise rates by 25 bps on Wednesday. But whether it will indicate more rate hikes this year remains to be seen as U.S. inflation is still above the bank’s annual target range.
The dollar stabilised in Asian trade, with the dollar index and dollar index futures hovering around 101. Both instruments were trading well above a 15-month low reached earlier in July.
Focus this week is also on an ECB meeting on Thursday, with the bank set to raise rates by 25 bps.
The Japanese yen added 0.3 per cent on Monday, recuperating from steep losses last week as Japan’s finance minister admitted that inflation was stickier than anticipated.
But in spite of this trend, the Bank of Japan has given little indication that it intends to tighten its ultra-loose policy in the near-term, and is broadly expected to hold out on interest rates and its yield curve control measures this Friday. The Japanese Government also said on Monday that inflation is likely to moderate further in 2023.
A dovish outlook from the Bank of Japan puts more downward pressure on the yen, with a Fed rate hike this week set to further broaden the gap between local and U.S. interest rates.
The rate hike is also expected to weigh on most other Asian currencies, as the gap between risky and low-risk debt reduces.
The Taiwan dollar declined 0.1 per cent, while the South Korean won increased 0.3 per cent. The Indian rupee was flat, while the Australian dollar rose on possibility of further stimulus measures in China.
The Chinese yuan dropped 0.1 per cent, taking little support from a strong midpoint fixing by the People’s Bank of China.
