Asia FX gains on Friday as expectations of U.S. interest rate cuts continued to pressure the dollar. This trend puts the greenback on track for its fourth consecutive week of losses. However, the Japanese yen lagged behind other Asian currencies, reflecting the shifting risk sentiment in global markets.
The dollar experienced a mild rebound from its near seven-month lows on Thursday. Despite this, it remained on a downward trajectory for the week. The growing belief that the Federal Reserve will reduce interest rates in September has fueled this decline. This sentiment encouraged some capital inflows into Asian markets, although concerns about China and expectations of a modest Fed rate cut kept gains in local currencies restrained.
While the Japanese yen showed slight firmness on Friday, it was still one of the weakest Asian currencies this week. Improved risk appetite led to a decrease in demand for the yen as a safe haven. The USD/JPY pair fell 0.2% on Friday but had risen 1.6% over the week, edging closer to the 150 yen level. Despite these fluctuations, the outlook for the yen remains positive, supported by strong economic data from Japan, including robust GDP growth driven by higher wages. This economic strength is expected to give the Bank of Japan more flexibility in future interest rate decisions.
The dollar index and futures both saw slight declines in Asian trading, marking a potential weekly loss of 0.2%. This would be the fourth consecutive week in the red for the dollar. Positive retail sales data from July provided some temporary support for the dollar on Thursday, easing fears of an imminent recession. However, softer inflation figures earlier in the week bolstered expectations of a Fed rate cut in September, albeit by a modest 25 basis points instead of the initially anticipated 50 basis points.
Among other Asian currencies, the Chinese yuan’s USD/CNY pair fell 0.2% but is expected to close the week slightly higher. Mixed economic data from China and Beijing’s promises of further stimulus measures did little to lift market sentiment toward the yuan. The market’s attention is now focused on the People’s Bank of China’s upcoming decision on its benchmark loan prime rate next week, following an unexpected rate cut in July.
In other currency movements, the Australian dollar (AUD/USD) rose by 0.2%, and the New Zealand dollar (NZD/USD) gained 0.5%. Despite this, the Reserve Bank of New Zealand’s governor has hinted at possible rate cuts totaling 50 basis points this year. Meanwhile, the South Korean won (USD/KRW) fell by 0.4%, and the Singapore dollar (USD/SGD) dipped by 0.1%. The Indian rupee (USD/INR) also saw a slight decline but remained close to its record highs of over 84 rupees.
The ongoing pressure on the U.S. dollar due to rate cut expectations has provided some support for Asia FX gains, although the Japanese yen continues to struggle. The broader market dynamics suggest continued volatility as investors remain focused on central bank decisions and economic data releases.
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