Investing.com — Most Asian currencies held a narrow range on Tuesday, remaining under pressure from a strong dollar amid growing speculation about the path of U.S. interest rates and President-elect Donald Trump's plans on trade tariffs.
Expectations for key inflation data this week have kept traders largely biased towards the dollar, especially as recent labor data reinforces the case for a slowing pace of interest rate cuts by the Federal Reserve.
This trend has kept traders largely averse to risk-driven Asian markets, especially in the face of higher US interest rates for a longer period. Uncertainty over China's stimulus measures and the Bank of Japan's plans to raise interest rates also weighed on regional markets.
The dollar is stable near a two-year high amid speculation over interest rates and tariffs
Both rose slightly on Tuesday after recording slight losses in overnight trading.
Traders are awaiting more information about Trump's plans for trade tariffs when he takes office next week. A Bloomberg report said that Trump's team was planning to propose a gradual imposition of 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 tiered path to tariffs. Trump has pledged to impose heavy tariffs on several countries, including 60% tariffs on China, from “day one” of his term.
On the interest rates front, the focus this week is squarely on December inflation data, due on Wednesday. Any signs of continued inflation are likely to strengthen the dollar and shake Asian currencies.
The Japanese yen is not getting much support from comments about raising interest rates
The Japanese yen fell on Tuesday, with the pair rising 0.1% and largely reversing its initial losses.
The yen rose marginally after Bank of Japan Deputy Governor Ryozo Himeno said the central bank will discuss whether to raise interest rates at a meeting next week.
Speculation about further interest rate hikes by the Bank of Japan has increased in recent weeks, following strong wage growth and household spending data. Japanese inflation has also remained consistently above the Bank of Japan's 2% annual target in recent months.
Broader Asian currencies were largely weak, as traders remained biased towards the dollar ahead of this week's inflation data. Several Fed officials are also scheduled to speak in the coming days.
The Chinese yuan pair stabilized, but remained close to its highest level since September 2023, amid increased focus on more stimulus measures from Beijing. The People's Bank of China is also scheduled to make a decision on its key loan interest rate this week.
The Australian dollar pair rose slightly after falling to its lowest level in almost five years this week.
The Singapore dollar was flat, as was the South Korean won.
The Indian rupee pair stabilized after hitting a record high of Rs 86,651 earlier this week.
