Most Asian currencies experienced a decline on Thursday as concerns over higher U.S. interest rates propelled the dollar and Treasury yields, leading to heightened vigilance over potential Japanese government intervention after the yen reached a one-year low.
US Dollar at Near Two-Week High Amid Fed Apprehension
The dollar index and dollar index futures both saw a 0.2% increase in Asian trading, marking a near two-week high as market participants took a cautious stance ahead of an upcoming Federal Reserve meeting. While the central bank is widely anticipated to maintain its current interest rates, Federal Reserve officials have refrained from ruling out the possibility of at least one more rate hike later in the year.
Moreover, recent indicators of resilience in the U.S. economy have given the Federal Reserve more room to sustain higher interest rates. Third-quarter gross domestic product data, expected later on Thursday, is projected to reveal a substantial surge in economic growth.
The prospect of the United States maintaining higher interest rates for an extended period weighed on most Asian currencies, as it diminished the appeal of risk-driven assets. Many regional currencies have been grappling with significant losses throughout the year, largely driven by the sharp increase in U.S. interest rates.
Japanese Yen Breaches 150, Prompting Government and BOJ’s Attention
The Japanese yen broke through the crucial 150 level for the second time this month, leading to increased speculation that the Japanese government may step in to stabilize the currency markets. The yen reached a one-year low of 150.41 against the dollar.
This isn’t the first time the currency breached the 150 level this month. On October 3, it briefly crossed this threshold before rapidly bouncing back. This event spurred speculation that the government had already intervened in the currency markets. Prior to October 22, the yen hadn’t broken the 150 mark since the onset of Japan’s “lost decade” in 1990.
The yen’s decline, coupled with a notable surge in Japanese government bond yields, has raised expectations that the Bank of Japan will consider further adjustments to its yield curve control policy at its upcoming meeting this Tuesday.
Additional insight into a potential policy shift will be offered by Tokyo’s inflation data, scheduled for release on Friday.
Other Asian Currencies Affected by Deteriorating Risk Sentiment
Most other Asian currencies experienced declines as worsening risk sentiment favored the dollar. Concerns regarding an escalation in the Israel-Hamas conflict added to this sentiment, following Israel’s reaffirmation of its commitment to a ground assault on Gaza.
The Chinese yuan remained stable as traders tried to assess the potential economic impact of the Chinese government’s planned 1 trillion yuan ($136 billion) bond issuance. The currency continued to face pressure stemming from doubts about an economic recovery, as well as ongoing issues in the property market.
The Indian rupee depreciated by 0.2%, primarily due to renewed pressure from the spike in oil prices on Wednesday.
The South Korean won, sensitive to interest rate fluctuations, lost 0.4% as data indicated that the country’s gross domestic product had exceeded expectations in the third quarter. This boosted expectations that the Bank of Korea had completed its interest rate hikes.
The Australian dollar slid by 0.5%, ending a two-day rally as data revealed a decline in export prices throughout the third quarter. Nevertheless, expectations of an interest rate hike by the Reserve Bank in November are likely to support the Australian dollar in the upcoming week.
