Most Asian currencies advanced on Monday as the US dollar recorded notable losses ahead of a highly anticipated Federal Reserve policy meeting later this week. The Japanese yen staged the biggest move, jumping to levels not seen in roughly two months amid signs of intensified communication between US and Japanese officials on foreign exchange developments.
The US Dollar Index fell 0.5% to its lowest level since mid-September. US Dollar Index Futures were also down 0.5% as of 06:47 GMT.
Yen rally and intervention risks
The USD/JPY pair dropped by more than 1% to around 154 yen in early Asian trading, following a 1.7% plunge on Friday. That sequence of moves pushed the yen to its strongest position since late November and prompted short covering after weeks of heavy bearish positioning.
Market attention centered on the prospect of intervention after US and Japanese officials signaled close communication on exchange-rate developments. Speculation of potential joint action intensified after US authorities conducted checks with market participants - a step that market observers often view as a possible precursor to intervention - while Japanese officials reiterated warnings about excessive currency moves.
The yen's sharp rebound reversed its recent weakness. That weakness had accelerated following the election of Prime Minister Sanae Takaichi, when expectations for aggressive fiscal spending combined with continued accommodative monetary policy under her administration pushed the currency lower, at one point reaching over 18-month lows earlier in January.
Other Asian currency moves
Elsewhere in the region, the USD/KRW pair fell 0.4% as the South Korean won strengthened. China's onshore USD/CNY pair edged down 0.1%. The Singapore dollar extended notable losses when USD/SGD declined 0.3% - a move that took the Singapore currency to its weakest USD-linked level since September 2014 for the dollar pair. The Indian rupee saw USD/INR edge down 0.2%, though it remained close to the record-high level of 92 rupees reached in the previous session. The Australian dollar rose, with AUD/USD gaining 0.3% on Monday.
Dollar under pressure ahead of Fed meeting
The dollar's weakness comes as markets focus on the Federal Reserve's two-day meeting, which concludes on Wednesday. Market participants generally expect the Fed to hold interest rates steady at this meeting, but Chair Jerome Powell's accompanying guidance will be closely parsed for indications about the timing and pace of potential rate cuts later in the year.
ING analysts said: "Our house view has been that the Fed will cut rates at the March and June FOMC meetings, but the clear risk is that will be delayed by perhaps three months." Traders are also monitoring expectations that US President Donald Trump will announce his nominee for the next Federal Reserve chair. Any sign that the White House could favor a more dovish policy stance has added further downward pressure on the dollar.
Implications for markets
The developments underscore heightened sensitivity in currency markets to both central bank signaling and diplomatic coordination. Short covering in the yen, checks by US authorities with market participants, and repeated warnings from Japanese officials combined to shift market positioning rapidly, while broader dollar weakness ahead of the Fed meeting helped lift a range of Asian currencies.
Observers will be watching comments from Fed officials and any further indications from US or Japanese authorities about possible intervention, as these factors could continue to drive volatility in currency and related asset markets.