Investing.com– Most Asian currencies kept to a tight range on Tuesday, remaining under pressure from a strong dollar amid heightened speculation over the path of U.S. interest rates and President-elect Donald Trump’s plans for trade tariffs.
Anticipation of key inflation data this week kept traders largely biased towards the greenback, especially as recent labor data furthered the case for a slower pace of rate cuts by the Federal Reserve.
This trend kept traders largely averse towards risk-driven Asian markets, especially in the face of higher-for-longer U.S. rates. Uncertainty over stimulus measures in China and the Bank of Japan’s plans for rate hikes also weighed on regional markets.
Dollar steady near 2-yr high amid rate, tariffs speculation
The dollar index and dollar index futures both rose slightly on Tuesday after clocking mild losses in overnight trade.
Traders were watching for more insight into Trump’s plans for trade tariffs when he takes office next week. A Bloomberg report said Trump’s team was planning to propose a gradual imposition of tariffs to increase leveraging power and lessen the inflationary shocks of any tariffs.
While the report did ease some concerns over Trump’s tariff plans, it still remained to be seen whether the President-elect will adopt a staggered path for the duties. Trump has vowed to impose steep tariffs on several countries, including a 60% duty on China, from “day one” of his term.
On the rates front, focus this week is squarely on consumer price index inflation data for December, due on Wednesday. Any signs of inflation having remained sticky are likely to boost the dollar and rattle Asian currencies.
Japanese yen takes little support from rate hike comments
The Japanese yen weakened on Tuesday, with the USD/JPY pair rising 0.1% and largely reversing initial losses.
The yen had firmed marginally after BOJ Deputy Governor Ryozo Himino said that the central bank will debate whether to raise interest rates at a meeting next week.
Speculation over more rate hikes by the BOJ grew in recent weeks, following strong wage growth and household spending data. Japanese inflation has also consistently remained above the BOJ’s 2% annual target in recent months.
Broader Asian currencies were largely muted, as traders remained biased towards the dollar before this week’s inflation data. Several Fed officials are also set to speak in the coming days.
The Chinese yuan’s USD/CNY pair was flat 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 set to decide on its benchmark loan prime rate this week.
The Australian dollar’s AUD/USD pair rose slightly after slumping to a near five-year low this week.
The Singapore dollar’s USD/SGD pair was flat, as was the South Korean won’s USD/KRW pair.
The Indian rupee’s USD/INR pair steadied after racing to a record high of 86.651 rupees earlier this week.
