Investing.com– Most Asian currencies moved in tight territory on Tuesday, while the dollar extended overnight gains as traders braced for a slower pace of interest rate cuts in the coming year.
Trading volumes were muted ahead of the Christmas holiday, while most regional currencies nursed significant losses against the backdrop of the year.
Asian currencies weakened sharply last week after the Federal Reserve effectively halved its outlook for rate cuts in 2025, citing concerns about sticky US inflation.
Dollar near 2-year high on hawkish rate outlook
The and both rose about 0.1% in Asian trade, extending overnight gains and coming back within sight of last week's two-year high hit.
Although the greenback saw some weakness after data read lower than expected for November, this was largely offset by traders scaling back expectations for interest rate cuts in 2025.
The Fed indicated only two rate cuts in the coming year, less than the previous expectation of four.
Higher US rates reduce the attractiveness of risk-driven Asian markets, limiting capital inflows into the region and stressing regional markets.
Asia FX under pressure with sticky US rate outlook
Most Asian currencies weakened in recent sessions on expectations of slower rate cuts in the US, while uncertainty over local monetary policy and slow economic growth also weighed.
The Japanese yen pair fell 0.1% on Tuesday after rising as high as 158 yen in recent sessions, after the Bank of Japan signaled it will take time to consider further interest rate hikes.
The Australian dollar pair fell 0.2% after minutes of the Reserve Bank's December meeting showed policymakers had finally eased monetary policy, citing some progress in bringing down inflation. But they still pointed to upside risks for inflation.
The Chinese yuan pair rose 0.1% and remained near a one-year high, as expectations of more fiscal spending and looser financial conditions next year weighed on the currency.
Beijing indicated that it will increase fiscal spending in 2025 to support slow economic growth.
The Singapore dollar pair rose 0.1%, and the Indian rupee pair rose 0.1% after hitting record highs above 85 rupees.
