• Thu. May 23rd, 2024

Asian Currencies Little Changed Amidst Disinflation Talk

Summer White

BySummer White

Feb 8, 2023

On Wednesday, most Asian currencies recorded very little movement, as traders were digesting the comments from the Federal Reserve chairman, Jerome Powell, which turned out to be less hawkish than expected.

Meanwhile, the Indian rupee received some support from the Reserve Bank of India (RBI), which hinted at more interest rate hikes down the road.

Currency movements

The Indian rupee rose 0.2%, making it one of the better performers of the day after an interest rate hike of 25 basis points was delivered by the RBI, as expected.

However, the real surprise was the statement of the Indian central bank about more hikes because markets had been expecting it to hit a pause on its hiking cycle.

Nonetheless, the central bank still highlighted a strong economic outlook for the country and also said that inflation was expected to come down in the next few months, but at a very slow pace.

As far as broader Asian currencies are concerned, they remained in a tight range because the comments from the Fed chairman painted a rather confusing picture of the monetary policy of the US central bank.

The Fed

The chairman of the US central bank noted that there was certainly disinflation happening in the economy, but also warned that there could be more interest rate hikes due to a robust job market and stubborn inflation.

There was a drop in the US dollar after his comments, but traders still had a mixed outlook regarding the monetary policy of the Fed, particularly after markets had been rattled by the payrolls data in the previous week.

On Wednesday, there was a 0.1% decline in the US dollar index and dollar index futures, each. This week, other Fed policymakers also highlighted the strong US nonfarm payroll data.

They also stated that more interest rate hikes could be required in the coming months. The possibility of higher interest rates in the US is not a good sign for Asian markets.

This is because of the narrowing of the gap between low-risk and risky yields. Foreign capital inflows in the region are also weighed down by tighter liquidity conditions in the US.

More movements

There were few movements recorded in broader Asian currencies. There was a 0.1% drop in the Japanese yen, as data showed that the current account surplus had seen a sharp decline in December.

This was in light of a weak currency and an increasing trade deficit. The data also gave rise to concerns about a slowdown in the Japanese economy.

It could be a problem, seeing that the economy is already struggling because of declining demand for exports and high inflation.

There was a 0.2% gain in the Chinese yuan against the US dollar, but it continued to remain in the tight range seen this week, with markets waiting for the consumer price index (CPI) data for January.

It is scheduled for release on Friday and it is expected to provide clues regarding the country’s economic recovery after it removed most of the COVID curbs earlier.

Summer White

Summer White

Summer White, an esteemed writer for Big Trends Signals, combines her online trading expertise and articulate writing to deliver exhaustive guides and fair reviews, assisting traders in digital markets.

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