Investing.com— On Tuesday, most Asian currencies remained largely steady, facing pressure from a robust dollar amid increasing speculation about U.S. interest rate trajectories and President-elect Donald Trump’s proposed trade tariffs.
Traders remained cautious, largely favoring the dollar as they awaited critical inflation data later this week, especially following recent labor statistics that supported the case for a more gradual approach to rate reductions by the Federal Reserve.
This sentiment led to a general aversion towards risk-sensitive Asian markets, particularly with concerns of sustained high rates in the U.S. Additional uncertainties regarding stimulus strategies in China and the Bank of Japan’s upcoming rate hike discussions also contributed to regional market pressures.
Dollar stable near two-year peak amid speculation over rates and tariffs
The dollar index saw minor gains on Tuesday after experiencing slight losses during the previous trading session.
Traders were keenly awaiting further clarification on Trump’s tariff strategies as he prepares to assume office next week. A Bloomberg report suggested that Trump’s team may advocate for a gradual implementation of tariffs to enhance negotiating power and mitigate the potential inflationary impacts of these tariffs.
Although this report alleviated some anxiety around Trump’s tariff intentions, it remains uncertain whether he will implement a phased approach to these duties. Trump has committed to initiating significant tariffs on several nations, including a 60% tax on China, starting immediately when he takes office.
Market focus this week is directed toward the inflation data for December scheduled for release on Wednesday. Persistent inflation could potentially strengthen the dollar and disrupt Asian currencies.
Japanese yen struggles despite rate hike speculation
On Tuesday, the Japanese yen experienced a decline, with the USD/JPY pair rising by 0.1%, effectively reversing earlier losses.
Earlier, the yen had strengthened slightly following comments from BOJ Deputy Governor Ryozo Himino, who indicated that the central bank will discuss the possibility of raising interest rates at its upcoming meeting next week.
Speculation surrounding additional rate hikes from the BOJ has intensified recently, boosted by strong wage growth and household spending data. Japanese inflation has consistently surpassed the BOJ’s 2% annual target in recent months.
Overall, Asian currencies were mostly stable as traders showed a preference for the dollar ahead of this week’s inflation announcement. In the coming days, several Federal Reserve officials are also scheduled to speak.
The Chinese yuan remained unchanged against the dollar but was situated near its highest point since September 2023, amid rising expectations for more stimulus initiatives from Beijing. The People’s Bank of China is also expected to announce its benchmark loan prime rate soon.
The Australian dollar showed slight improvement after having dropped to a near five-year low earlier this week.
Meanwhile, the Singapore dollar and South Korean won held steady against the dollar.
The Indian rupee stabilized after reaching a record high of 86.651 rupees earlier this week.
