Investing.com — Most Asian currencies fell on Wednesday, as growing bets on a slowdown in the pace of U.S. interest rate cuts supported the dollar, while the Japanese yen steadied amid government officials warning of potential intervention.
Regional markets are also facing deteriorating trade relations between the United States and China, after Washington added two major Chinese companies to a blacklist of companies with ties to the Chinese military.
The move comes ahead of the inauguration of President-elect Donald Trump on January 20, during which Trump pledged to impose heavy trade tariffs on China. The Chinese yuan pair stabilized after touching its weakest level in 17 years earlier this week.
Among other Asian units, the South Korean won pair rose by 0.1% amid continued political uncertainty in the country.
The Singapore dollar pair rose 0.1%, while the Indian rupee stabilized at 85.8 rupees after hitting record levels above 86 rupees last week.
The dollar is optimistic due to strong labor and PMI data
The dollar index stabilized in Asian trading on Wednesday, after rising sharply in overnight trading.
The dollar was supported mainly by stronger-than-expected data for November, which showed that the labor market remains strong. The data came just days before key data for December, which is set to provide more definitive signals for the labor market this week.
The strong data also spurred bets that inflation will remain flat in the coming months, giving the Federal Reserve more momentum to cut interest rates at a dizzying pace.
The central bank warned that it will significantly slow the pace of interest rate cuts in 2025 due to concerns about persistent inflation and the strength of the labor market.
Higher US interest rates in the long term do not bode well for Asian markets, as they herald a smaller spread in regional asset prices.
The Japanese yen stabilizes amid talk of intervention
The Japanese yen pair hovered around a low of 158 on Wednesday, after recovering marginally from its weakest level in nearly six months.
The yen halted recent losses after government officials gave a verbal warning about possible intervention in the currency market, which prompted traders to be more cautious in selling the Japanese currency.
The prospect of higher US interest rates and dovish expectations from the Bank of Japan hammered the yen during December, putting USDJPY near levels that last called for government intervention.
Traders are looking at the 160 yen level as a potential intervention point.
The Australian dollar stabilized as markets weighed mixed CPI data
The Australian dollar pair pared early losses to trade flat as traders digested mixed inflation data from the country.
Headline inflation reading was higher than expected for November, while core inflation eased slightly.
The reading provided various signals on when the RBA could start cutting interest rates, given that core inflation remains above its 2% to 3% target range.
Analysts expect the Reserve Bank of Australia to start cutting interest rates only by the second quarter, although Wednesday's data prompted some bets on an earlier cut.
