Most Asian currencies strengthened on Tuesday, following an overnight pullback in the U.S. dollar. The greenback’s recent rebound lost momentum as investors turned cautious ahead of several key U.S. economic indicators scheduled for release this week.
The Japanese yen edged higher, extending gains from the previous session. Fresh warnings from government officials about potential intervention in currency markets helped support the yen, allowing it to shrug off concerns over rising fiscal spending under Prime Minister Sanae Takaichi. Takaichi recently secured a landslide victory in lower house elections, reinforcing her political mandate.
Regional currencies benefited from the softer dollar, although overall gains remained modest. Markets stayed cautious as traders awaited upcoming U.S. economic data that could influence interest rate expectations.
Dollar steadies after sharp drop as key U.S. data looms
The dollar index and dollar index futures traded largely flat during Asian hours after falling around 0.7% overnight. That decline pushed the greenback closer to a near four-year low last seen in late January.
Bank of America analysts noted that, without fresh catalysts, the dollar is likely to see two-way price action until clearer guidance emerges from the next Federal Reserve chair. They added that ahead of this week’s U.S. data releases, the FX market has returned to a slightly bearish bias on the dollar.
U.S. retail sales data for December is due later on Tuesday. This will be followed by January nonfarm payrolls data on Wednesday and consumer price index inflation data on Friday. These releases are expected to play a crucial role in shaping expectations for future interest rate policy.
Markets have already been on edge after President Donald Trump nominated Kevin Warsh to succeed Jerome Powell as Federal Reserve chair. Warsh is widely seen as less dovish, a perception that previously triggered a sharp rebound in the dollar and weighed on Asian currencies.
Asian currencies advance as yen extends post-election gains
Asian currencies broadly firmed on Tuesday, with the Japanese yen leading gains. The USD/JPY pair fell 0.3%, marking a second consecutive day of strength for the yen.
The currency was supported by repeated warnings from Japanese officials about intervening in FX markets. These signals helped offset lingering concerns over Japan’s large public debt burden, which resurfaced after Takaichi’s decisive election victory.
With her ruling coalition now holding a supermajority in the lower house, Takaichi has ample political room to pass expansive fiscal and budgetary measures. These are expected to include increased government spending and potential tax cuts.
Elsewhere in the region, the Chinese yuan strengthened, with USD/CNY falling 0.2%. The yuan traded at its strongest level against the dollar in more than two and a half years, supported by consistently firm midpoint fixings set by Beijing. Chinese CPI inflation data is scheduled for release on Wednesday.
The Australian dollar slipped slightly, with AUD/USD down 0.1%. The move came after recent gains supported by hawkish comments from the Reserve Bank of Australia. Bank of America analysts warned that the rally appeared stretched and that a near-term pullback was possible.
The Singapore dollar was little changed, even as final fourth-quarter GDP data showed the economy expanding more than expected. Meanwhile, the South Korean won strengthened modestly, with USD/KRW down 0.2%.
The Indian rupee also edged higher, with USD/INR falling 0.1%, although the currency remained well above the 90-per-dollar level.
