Asia FX mixed as dollar sits near 2-year peak amid rates, rate forecasts By Investing.com

Investing.com– Most Asian currencies remained volatile on Tuesday, under pressure from a stronger dollar amid growing speculation about the path of interest rates. US interest rates and President-elect Donald Trump’s plans for trade tariffs.

The prospect of important inflation data this week kept traders particularly biased towards the greenback, especially as the latest labor data improved the case for a rate cut by the Federal Reserve.

This approach kept traders very resistant to risk-driven Asian markets, especially in the face of high US long-term rates. Uncertainty over stimulus measures in China and plans by the Bank of Japan to raise rates also weighed on regional markets.

Dollar steady near 2-yr high amid rate, rate hikes

The pair edged up slightly on Tuesday after covering a small loss in overnight trade.

Traders were watching for more insight into Trump’s plans for trade tariffs when he takes office next week. A Bloomberg report said Trump’s team plans to propose a gradual rate hike to increase leverage and reduce any price shocks.

Although the report eased some concerns about Trump’s tariff plans, it remained to be seen whether the President-elect would take a more dramatic approach to jobs. Trump has vowed to impose higher tariffs on several countries, including a 60% tariff on China, from “day one” of his term.

On the rates front, this week the focus is on inflation data for December, due on Wednesday. Any signs of continued inflation are likely to boost the dollar and hurt Asian currencies.

The Japanese yen needs little support from rate hike sentiment

The Japanese yen weakened on Tuesday, with the pair up 0.1% and largely recouping earlier losses.

The yen strengthened slightly after BOJ Deputy Governor Ryozo Himino said the central bank would debate whether to raise interest rates at a meeting next week.

Speculation for more rate hikes by the BOJ has grown in recent weeks, following strong earnings growth and household consumption data. Japan’s inflation has also remained above the BOJ’s annual target of 2% in recent months.

Broader Asian currencies were largely muted, as traders remained bearish on the dollar ahead of this week’s inflation data. Several Fed officials are also set to speak in the coming days.

China’s yuan was flat but remained near its highest level since September 2023, amid increased focus on stimulus measures from Beijing. The People’s Bank of China is also set to decide on its key lending rate this week.

The Australian dollar rose slightly after a near five-year low this week.

The Singapore dollar was flat, as was the South Korean won.

The Indian rupee pair stabilized after running to a record high of 86.651 rupees earlier this week.