Most Asian currencies saw little movement on Monday in thin trading as Japan, China, and South Korea observed public holidays. However, the Japanese yen surged to an eight-month high while the U.S. dollar weakened ahead of key central bank meetings.
The U.S. dollar index and futures dropped 0.3% in Asian trading, continuing a recent losing streak as investors positioned themselves for an expected interest rate cut from the Federal Reserve. The Fed is widely anticipated to cut rates following its meeting on Wednesday, though the size of the cut remains uncertain.
According to CME Fedwatch data, there is a 50% chance of a 50 basis point cut and an equal chance for a more modest 25 basis point reduction.
Despite this uncertainty, analysts expect the Fed to begin a broader easing cycle this week, with up to 100 basis points of cuts anticipated by the end of 2024.
In contrast, the Japanese yen outperformed other Asian currencies, with the USD/JPY pair dropping 0.6% to 140.04, its lowest level since early January. At one point, the yen briefly traded below 140 for the first time in 2023. This rally was fueled partly by low trading volumes due to holidays, but also by anticipation of the Bank of Japan's meeting later in the week, where officials are expected to deliver a more hawkish outlook on interest rates.
Japanese consumer inflation, which is due to be released on Friday, is expected to come in stronger, giving the BOJ additional incentive to raise rates. The yen has been gaining momentum following a series of hawkish statements from BOJ officials, signaling a potential shift toward tighter monetary policy.
Broader Asian currencies remained relatively quiet in holiday-thinned trade. The Australian dollar gained 0.4%, while the Singapore dollar fell 0.2%, and the Indian rupee continued its decline.