Investing.com-- Most Asian currencies firmed on Thursday while the dollar steadied before more cues on interest rates, especially from an address by Federal Reserve Chair Jerome Powell later in the day. The Chinese yuan continued to strengthen after hitting a 16-month high, as traders cheered more stimulus measures from Beijing released earlier this week. Optimism over China also boosted broader regional currencies. The Japanese yen was an outlier, extending overnight losses as sentiment towards Japan soured before the 2024 Liberal Democratic Party presidential election on Friday, which will effectively determine the country’s next Prime Minister. The dollar cooled in Asian trade as an overnight rebound stalled, with the greenback nursing steep losses over the past week after a bumper interest rate cut by the Fed.
Dollar steady, Powell speech awaited
The USD/JPY and EUR/USD both steadied in Asian trade after logging a sharp rebound on Wednesday. The greenback recouped some losses seen over the past week, after the Fed cut interest rates by 50 basis points and marked the beginning of an easing cycle. Focus this week is squarely on more cues from the Fed, with a string of policymakers set to speak in the coming days. Powell is set to speak later on Thursday. PCE data- the Fed’s preferred inflation gauge- is due on Friday, and is also expected to factor into the Fed’s next move. Before that, a revised reading on second quarter GDP, as well as weekly jobless claims data are due on Thursday.
Chinese yuan firm as stimulus cheer persists
The USD/CNY pair fell 0.2% on Thursday, remaining at its lowest level since May 2023. The yuan clocked strong gains after Beijing unveiled a string of major stimulus measures aimed at shoring up growth. The People’s Bank reduced bank reserve requirements by 50 basis points, while also lowering mortgage rates. The move ramped up confidence in a Chinese economic recovery, buoying the yuan. But looser monetary conditions are expected to limit the yuan’s recovery. Optimism over China boosted other Asian currencies, with the AUD/USD pair rising 0.3%. The KRW/USD pair fell 0.3%, while the SGD/USD pair fell 0.2%. The INR/USD pair rose slightly after rising on Wednesday. The JPY/USD pair rose 0.1%, moving further away from its 2024 lows as sentiment towards Japan turned uncertain before the LDP elections on Friday, which are set to determine the country’s next Prime Minister. Analysts expect a leadership change in Japan to stymie the Bank of Japan’s plans to raise interest rates in the near-term.
Analysis:
The Asian currencies are experiencing fluctuations due to various factors such as interest rate cuts, stimulus measures, and upcoming political events. Investors are closely watching the Federal Reserve's cues on interest rates, particularly Powell's speech, to gauge the future direction of the dollar. The Chinese yuan's strength following stimulus measures from Beijing is boosting confidence in the region's economic recovery. However, uncertainties surrounding Japan's upcoming elections are impacting the Japanese yen. Overall, the market is reacting to both domestic and international events, and investors need to stay informed to make well-informed decisions in these volatile times.