Asian FX Muted as Dollar Remains Near Two-Year High on Rate, Tariff Speculation By Investing.com

Investing.com– Most Asian currencies remained in a narrow range on Tuesday, remaining under pressure from a strong dollar amid heightened speculation over the movement of U.S. interest rates and President-elect Donald Trump’s plans for trade tariffs.

Anticipation of key inflation data this week has kept traders heavily biased against the US currency, especially as recent jobs data further confirmed a slower pace of rate cuts by the Federal Reserve.

This trend has kept traders largely averse to risk-driven Asian markets, especially in light of higher for longer US rates. Uncertainty over China’s stimulus measures and the Bank of Japan’s rate hike plans also weighed on regional markets.

Dollar steady near two-year high amid speculation about rates and tariffs

Both rose slightly on Tuesday after slight losses in overnight trade.

Traders have been waiting 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 phasing in tariffs to increase leverage and reduce inflationary shocks from any tariffs.

While the report eased some concerns about Trump’s tariff plans, it remains to be seen whether the president-elect will adopt a phased schedule for duties. Trump has vowed to impose high tariffs on several countries, including a 60% tariff on China, from “day one” in office.

As for rates, the focus this week is precisely on inflation data for December due on Wednesday. Any signs that inflation has remained sticky is likely to strengthen the dollar and shake up Asian currencies.

Japan’s yen gets little support from rate hike comments

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

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

Speculation about further rate hikes by the BOJ have risen in recent weeks, following strong wage growth and household spending data. Japanese inflation has also remained consistently above the BOJ’s annual target of 2% in recent months.

Broader Asian currencies were mostly muted, as traders remained biased against the greenback ahead of this week’s inflation data. Several Fed officials will also speak in the coming days.

China’s yuan was unchanged but remained near its highest level since September 2023 amid increased focus on more stimulus measures from Beijing. The People’s Bank of China is also due to decide on its benchmark key interest rate this week.

The Australian dollar pair rose slightly after falling to near five-year lows this week.

The Singapore dollar remained unchanged, as did the South Korean won.

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