Asian currencies slipped on Monday, with the South Korean won taking the biggest hit, as expectations for a potential U.S. rate cut next month continued to fade. Traders also shifted their attention to Japan’s weak third-quarter economic results.
The US Dollar Index rose 0.1%, reflecting a stronger dollar against major global currencies. Dollar Index futures showed the same 0.1% increase in early Monday trading.
Fed policy expectations pressure Asian currencies
Market sentiment turned cautious as investors grew more convinced that the Federal Reserve is not ready to cut interest rates soon. Several Fed officials stressed that inflation remains stubborn and that the labor market has not shown a clear slowdown.
Confidence was also affected by the recent U.S. government shutdown, which paused key economic data releases for weeks. The delay pushed back the Bureau of Labor Statistics’ September non-farm payrolls report, now expected on Thursday.
With the likelihood of a December rate cut falling to about 40%, the dollar gained strength while most Asian currencies lost ground.
The South Korean won posted the steepest decline, with USD/KRW rising 0.8%. In China, both the onshore USD/CNY and offshore USD/CNH pairs moved 0.1% higher. The Indian rupee remained stable, while the Singapore dollar slipped as USD/SGD gained 0.2%. The Australian dollar also weakened, with AUD/USD down 0.2%.
Japan’s Q3 GDP contracts but beats expectations
Japan’s economy shrank in the third quarter, posting an annualized decline of 1.8%. Although weak, the figure was slightly better than the expected 2.5% drop. Quarter-on-quarter, GDP fell 0.4%, signaling a loss of economic momentum.
The contraction was mainly driven by softer exports, influenced by recently imposed U.S. tariffs. Household spending stayed weak as consumers continued to face elevated inflation. The one bright spot was capital expenditure, which increased and showed that firms are still investing despite external pressure.
The Japanese yen also eased slightly, with USD/JPY edging up 0.1%.
