Asian currencies were mostly stable on Monday as traders reacted to rising expectations of a Federal Reserve rate cut in December and another batch of weak factory data from across the region.
The Japanese yen was the strongest performer, supported by renewed speculation that the Bank of Japan may raise interest rates later this month.
The U.S. Dollar Index slipped to a two-week low during Asian trading. Dollar Index Futures were little changed as of 05:06 GMT.
Asia FX steady as Fed rate-cut bets strengthen
Markets boosted their expectations for a Fed cut after a series of softer U.S. economic reports signaled cooling growth and easing inflation. Money-market pricing now suggests an 85% to 90% chance of a quarter-point cut on December 9–10, sharply higher than the roughly 40% odds seen a week ago.
The dollar softened as traders reassessed the interest rate outlook. However, positioning remained cautious due to the lack of updated labor and inflation data during the extended government shutdown.
The Chinese yuan (USD/CNY) traded flat, while the South Korean won (USD/KRW) firmed 0.2%.
The Indian rupee (USD/INR) gained 0.2%, and the Singapore dollar (USD/SGD) was steady.
The Australian dollar (AUD/USD) edged 0.1% lower.
Weak Asia PMIs weigh on sentiment; yen strengthens on BOJ signals
Regional confidence was hit by another round of poor manufacturing data. China’s factory activity contracted further, with both official and private PMIs showing an eighth straight month of decline. The readings highlighted weak domestic demand and sluggish export orders affected by U.S. tariff pressure.
Japan’s manufacturing sector also shrank again, marking its fifth consecutive month below the 50-point PMI threshold. South Korea’s PMI remained in contraction as well, dragged down by soft demand and weaker export momentum.
In currency markets, the yen outperformed. The USD/JPY pair fell 0.4% after Bank of Japan Governor Kazuo Ueda said policymakers would consider the “pros and cons” of a rate hike at the December 18–19 meeting. Investors viewed the comments as a clear hawkish signal.
Expectations for the BOJ’s first rate increase since exiting negative rates earlier this year helped strengthen the yen toward the mid-155 per dollar range. Rising Japanese government bond yields added further support as traders priced in a higher chance of policy tightening.
