Investing.com– Most Asian currencies edged higher on Thursday, while the dollar retreated as slightly weaker U.S. inflation data fueled expectations of lower interest rates.
Among the major regional drivers, South Korea’s won rose slightly after the Bank of Korea unexpectedly kept interest rates on hold, amid heightened political uncertainty in the country.
The Japanese yen raced to a near one-month high amid heightened speculation that the Bank of Japan will raise interest rates next week.
Most Asian currencies were on strong gains overnight, tracking the dollar’s sharp losses after Wednesday’s consumer inflation reading.
And it steadied in Asian trade after falling from near two-year highs in overnight trade, as inflation data came in slightly weaker than expected.
But anticipation of more key economic signs this week continued to keep the greenback in relatively good supply, with the dollar index remaining above the 109 level.
The won was little changed after the BOK kept rates on hold but flagged more cuts
South Korea’s won fell 0.1% after the BOK unexpectedly kept interest rates steady. But Governor Rhee Chang-yong has signaled that more easing is on the way.
BOK to 3%, beating expectations for a 25 basis point decline. The detention comes amid heightened political uncertainty in the country, after impeached President Yung Suk Yeol was arrested this week in a failed attempt to impose martial law.
Yeol’s move triggered sharp losses in South Korean markets through December, pushing the won to a 15-year low. This trend also likely led to the BOK’s decision to hold back.
But Governor Rhee has signaled that policymakers are poised to cut interest rates further in the coming months, especially as economic growth remains weak. BOK has cut rates twice in 2024.
Yen races to near 1-month high on speculation of BOJ hike
The Japanese yen was the best performing Asian currency on Thursday, with the pair falling 0.5% to 155.59 yen – its lowest level since mid-December.
The yen rallied this week as BOJ Governor Kazuo Ueda signaled the central bank would consider raising interest rates, amid steady increases in inflation and wages.
Reports from Reuters and Bloomberg also pointed to a strong possibility of a rate hike in January – a move that bodes well for the yen.
The Japanese currency, along with most of its regional peers, has been hit by concerns about US interest rates going higher for longer into 2025.
Broader Asian currencies were mostly stronger on Thursday. The Chinese yuan fell slightly, with the focus on key fourth-quarter data due on Friday.
The Australian dollar pair was an outlier, falling 0.2%, although it was much stronger than expected for December. Strength in the labor market dampens the chances of an interest rate cut by the Reserve Bank of Australia, which could start cutting rates as early as February.
The Australian rebounded sharply this week from an almost five-year low.
The Singapore dollar pair remained unchanged, while the Indian rupee pair hovered above the 86-rupee mark but remained close to record highs.
