Asian FX holds stable after upbeat U.S. numbers reduce chances of Fed easing; yen recovers from lows

Most Asian currencies traded in narrow ranges on Friday, while the U.S. dollar held firm near a six-week high, supported by upbeat U.S. economic data and growing expectations that Federal Reserve rate cuts are not imminent.

The US Dollar Index tarded largely flat during Asian hours after rising to its highest since early December overnight

US Dollar Index Futures also traded flat as of 03:35 GMT.

Strong U.S. data delays expectations of Fed rate cuts

U.S. initial jobless claims unexpectedly declined to 198,000 last week, beating forecasts of 215,000 and underscoring ongoing resilience in the labor market.

The figures strengthened expectations that the Federal Reserve will leave interest rates unchanged for a longer period, with traders now projecting the first rate reduction around the middle of the year. Remarks from multiple Fed officials overnight further contributed to the cautious sentiment.

Policymakers indicated they may delay rate cuts at the upcoming meeting, pointing out that employment conditions remain firm while inflation pressures have yet to fully ease.

Yen holds firm on government backing; won heads for weekly loss

In Japan, the yen inched higher after hovering near 18-month lows, with USD/JPY slipping 0.3%. The currency gained some backing following verbal interventions from government officials aimed at curbing its rapid decline.

“Recent headlines suggest the Bank of Japan is growing uneasy about the yen’s weakness, and BOJ policymakers now view the exchange rate as having a bigger impact on inflation,” MUFG analysts noted.

The yen has faced persistent pressure amid rising speculation that Prime Minister Sanae Takaichi may call an early snap election as soon as next month. Markets view the prospect of a vote as negative for the currency, on expectations of looser fiscal policy and increased government spending.

Across Asia, the South Korean won saw USD/KRW climb 0.2%, putting it on track for a gain of more than 1% this week, despite Thursday’s pullback. Brief support came earlier in the week after remarks from U.S. Treasury Secretary Scott Bessent helped bolster sentiment toward the currency.

In China, the onshore yuan (USD/CNY) was steady, while the offshore rate (USD/CNH) inched 0.1% higher. The Indian rupee (USD/INR) and the Singapore dollar (USD/SGD) were little changed, while Australia’s AUD/USD pair added 0.1% on Friday.

Sources: Investing