Investing.com– Most Asian currencies strengthened on Thursday as heightened expectations of interest rate cuts by the Federal Reserve weighed on the dollar, while a fragile yen kept traders on guard for possible government intervention.
But gains in Asian currencies were tempered by hawkish cues from the Fed’s June meeting minutes, while anticipation of Friday’s key payrolls data also kept sentiment cautious.
Japanese yen gains ground, but concerns about intervention persist
The Japanese yen gained some relief from the weaker dollar, with the pair falling 0.2% after nearly crossing the 162 level on Wednesday.
The pair was trading well above 160, the level that had attracted the last government intervention in May. As Japanese officials reiterated their commitment to defend the yen, traders remained on alert for any possible intervention in the coming days.
Traders speculated that the government would take advantage of low trading volumes during the July 4 U.S. market holiday to intervene. The government’s intervention in May had taken place during a Japanese market holiday.
Dollar plunges after weak jobs data, bets on rate cuts rise
Both the dollar and euro fell around 0.1% in Asian trading on Thursday, extending sharp declines seen overnight.
Weaker-than-expected data and a weak purchasing managers’ index are raising bets that the U.S. economy will slow, with traders betting that the Fed will cut interest rates sooner.
Weak jobs data also boosted bets on a weak reading on Friday.
Traders increased their bets that the Fed will implement a 25 basis point cut in September. Traders showed they estimate a nearly 66% chance of a rate cut in September, up from 59% the day before.
However, the results of the Federal Reserve’s June meeting showed that policymakers were not convinced that inflation was falling to the point where rate cuts were feasible. Some officials still believed that raising interest rates was necessary to reduce inflation.
Several Federal Reserve officials, most prominently Chairman Jerome Powell, also warned this week that while the bank had made some progress in combating inflation, it still lacked the confidence to begin cutting rates.
Still, most Asian currencies advanced against a weaker dollar. The Australian dollar pair rose 0.2%, despite data showing the country’s trade balance contracted more than expected in May due to weak exports.
The Chinese yuan pair held steady, holding near seven-month highs amid waning confidence in the Chinese economy.
The South Korean won pair fell 0.4%, while the Singapore dollar pair fell 0.1%.
The Indian rupee pair stabilized after approaching record highs this week.