The exchange rate in Asia weakens while the FED strengthens the dollar; Yen rises on bets on BOJ rate hike By Investing.com

Investing.com– Most Asian currencies fell on Thursday, pressured by a stronger dollar as hawkish comments from the Federal Reserve fueled bets on a slower pace of rate cuts in 2025.

The yen was an outlier, thanks to heightened speculation about an interest rate hike by the Bank of Japan after November’s stronger-than-expected payrolls data.

But the yen, like most Asian currencies, has seen heavy losses in recent sessions under pressure from a stronger dollar and rising US Treasury yields.

Weak inflation data from China also weighed on sentiment, as disinflation persists in Asia’s largest economy, despite recent stimulus from Beijing.

And it steadied in Asian trade after rebounding to a more than two-year high on Wednesday.

The Fed’s December meeting showed that policymakers are increasingly focused on a slower pace of rate cuts in 2025. Fed members also expressed concern about expansionary policies under President-elect Donald Trump potentially supporting inflation.

The yen rises as wages data boosts bets on a January rate hike

The Japanese yen rallied on Thursday, with the pair falling nearly 0.3% and briefly breaking below ¥158.

November’s data came in stronger than expected as Japanese wages continued to benefit from large increases seen earlier in 2024.

The data extended the idea of ​​a virtuous cycle in the Japanese economy – that rising wages will support inflation and give the Bank of Japan more incentive to raise interest rates sooner rather than later.

“We believe recent data – including solid spending, 2% above inflation over a longer period and continued healthy wage growth – support a hike in January,” ING analysts said in a note.

BOJ Governor Kazuo Ueda previously signaled that the bank would try to start negotiations in March before deciding on an increase. But analysts at ING said the case was poised for a hike in January, although it would still be close.

Chinese yuan weakens due to mild inflation

China’s yuan weakened on Thursday, remaining near its lowest levels in 17 years. The yuan pair gained 0.2% and remained well above the psychologically important level of 7.3.

inflation barely increased in December, while inflation decreased for the 27th month in a row.

The print showed a slight improvement in China’s long-term trend of disinflation and signaled that Beijing may need to do more to support economic growth.

Broader Asian currencies were mostly lower on Thursday. The Australian dollar pair fell 0.1% as data showed it rose less than expected in November, despite support from the Black Friday shopping event.

But Australia grew more than expected in November, thanks to strong commodity exports.

South Korea’s won fell 0.1%, amid continued efforts to arrest President Yoon Suk Yeol over a failed attempt to impose martial law.

The Singapore dollar pair remained unchanged, while the Indian rupee pair moved slightly below the 86 rupee level.