Most Asian currencies stabilized after strong gains on Monday, while the dollar incurred recent losses amid growing conviction that the Federal Reserve has concluded its interest rate hikes and will begin reducing them in early 2024.
The Japanese yen was one of the biggest beneficiaries of this idea, sharply recovering from its lowest levels in the past year in recent weeks due to the potential easing of pressures from rising U.S. interest rates. The yen stabilized around 146.75 against the dollar, approaching its strongest levels since mid-September. Attention also focused on the inflation reading from the Japanese capital, scheduled for Tuesday, for further potential signals regarding the Bank of Japan’s monetary policy plans.
The Chinese yuan, after a sharp recovery against the dollar in recent weeks, also stabilized on Monday, supported by a series of robust reforms from the People’s Bank of China. However, concerns persisted about the Chinese economy, especially after a series of weak Purchasing Managers’ Index (PMI) readings for November. The focus this week is on trade data for this month, although the trend is expected to remain weak amid declining exports.
The Australian dollar declined amid widespread expectations that the Reserve Bank of Australia would keep interest rates unchanged when it assemble on Tuesday. The Reserve Bank of Australia raised interest rates by 25 basis points in November but took a largely pessimistic tone about future rate hikes.
In another development, Federal Reserve Chair Jerome Powell adopted a seemingly less hawkish tone in two speeches last Friday, with markets betting that his comments on balancing tight monetary policy and soft economic downturn herald the final end of the Federal Reserve’s interest rate hike cycle. Markets price in over a 90% chance that the Federal Reserve will keep interest rates steady when it meets later in December and over a 60% chance that the bank will start lowering interest rates by March 2024. However, these bets largely hinge on inflation and the labor market, with non-farm payrolls data scheduled for release on Friday expected to provide further signals.
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Shady Fouad is a technical analyst at LDN Company
Shady's strategic vision in the currency markets is reinforced by more than fifteen years of trading experience, which enables him to blend economic and technical analyzes with high efficiency, and find the best investment ideas for traders.
