Asian foreign exchange markets saw little volatility on Friday, with most currencies moving within narrow bounds as the U.S. dollar remained strong near its peak levels not seen since early December. This firmness in the dollar was bolstered by encouraging economic data from the United States and a growing consensus that the Federal Reserve is unlikely to implement rate cuts in the near term.
During Asian trading hours, the US Dollar Index held steady after its ascent to a six-week high the previous night, with futures showing little movement as of 03:35 GMT.
Recent labor market statistics reinforced expectations that the Federal Reserve will maintain its current policy stance. U.S. initial jobless claims unexpectedly dropped to 198,000 last week, comfortably beneath the anticipated figure of 215,000, indicating sustained strength in the labor market.
As a result, market participants have deferred their forecasts for the first Federal Reserve rate reduction, pushing it towards the middle of the year. Comments from multiple Federal Reserve officials further emphasized this cautious outlook. These policymakers hinted at the possibility of keeping interest rates unchanged during the forthcoming policy meeting, citing signs of labor market stabilization amid persistent inflationary pressure.
In Japan, the yen experienced a slight recovery, rising approximately 0.3% against the U.S. dollar from recent 18-month lows. This modest rebound followed verbal interventions from Japanese government officials aimed at preventing precipitous declines in the yen's value. Analysts at MUFG noted concern within the Bank of Japan about the yen's weakness, highlighting its increasing influence on inflation trends going forward.
The yen's vulnerability has been linked to speculation about a potential snap election, possibly called by Prime Minister Sanae Takaichi in the near future. Market observers view such a development negatively for the yen, anticipating that it could lead to expanded fiscal stimulus and increased government expenditures.
Other Asian currencies exhibited varied performances. The South Korean won saw its USD/KRW rate rise by 0.2%, poised for a weekly gain exceeding 1%, despite setbacks on Thursday when remarks from U.S. Treasury Secretary Scott Bessent regarding financial support provided temporary strength.
Chinese domestic and offshore yuan pairs remained mostly unchanged, with the offshore yuan showing a marginal 0.1% uptick. Similarly, the Indian rupee and Singapore dollar traded flat against the U.S. dollar.
The Australian dollar saw a slight advance, increasing by 0.1% against the U.S. dollar on the day.