Investing.com– Most Asian currencies weakened on Friday, while the dollar sat near its strongest level in more than two years as traders braced for a non-farm payrolls reading which could be strong later in the day.
Regional sentiment was also dampened by weak inflation data from China, while traders speculated on a possible interest rate hike by the Bank of Japan, although this only provided strong support to the yen.
The dollar moved little in overnight trade due to a US market holiday. But the greenback remained optimistic after hawkish signals from the Federal Reserve earlier in the week.
Dollar steady near 2-year high as nonfarm payrolls
The index and both strengthened slightly in Asian trade, and were slightly below their strongest levels since November 2022.
The focus was squarely on data for December, due later on Friday, for more clues about the US economy and interest rates.
The greenback was boosted by the minutes of the Fed's December meeting, published on Wednesday, which confirmed the central bank's warning that rates will fall at a slower pace this year.
The minutes also showed policymakers concerned about expansionary and protectionist policies under President-elect Donald Trump, which could underpin long-term inflation.
Japanese yen weakens despite strong consumption data
The Japanese yen reversed gains on Thursday and eased on Friday, with the pair rising 0.2% and staying above the 158 yen level.
Stronger than expected data released on Friday raised more speculation over a January interest rate hike by the Bank of Japan, especially as data released on Thursday showed a larger than expected increase in .
Analysts expect a virtuous cycle of high wages, steady inflation and improvement in private consumption to encourage more rate hikes by the BOJ in the coming months, possibly as soon as the BOJ meeting in late January.
But the yen saw strong support for this view, as it was under pressure from the prospect of higher interest rates for the US for longer.
Broader Asian currencies weakened on Friday on the same sentiment, with traders turning particularly against the region ahead of the non-farm payrolls read.
The Chinese yuan pair rose 0.3%, with the currency seeing continued weakness after soft inflation data for December. The prospect of trade tariffs under Trump also caused sentiment toward China.
The Australian dollar pair fell 0.2% and was near a two-year low, as mixed inflation data released earlier in the week fueled bets on interest rate cuts by the Reserve Bank.
The South Korean won pair rose 0.4% amid ongoing political strife in the country, while the Singapore dollar pair rose 0.1%.
The Indian rupee pair fell below the 86 rupee level.
