Asian Currencies Hold Steady Amid Reduced Expectations for US Fed Rate Cuts

Asian currencies largely held their ground against the US dollar on Monday, stabilizing amid regional holidays, though analysts suggest they may come under pressure in the near term due to diminished expectations for interest rate cuts by the US Federal Reserve.

The market recalibration follows Friday’s release of a stronger-than-expected US nonfarm payrolls report, which has led investors to dial back bets on imminent rate cuts. According to Tapas Strickland, Head of Market Economics at National Australia Bank, the robust labor data reduces the likelihood of a rate cut as early as June. As a result, the market is now pricing in approximately 79.9 basis points of rate reductions for 2025, down from 92.2 basis points just days earlier.

Reflecting these shifts, the Japanese yen was little changed, with USD/JPY trading around 144.74, while the Australian dollar weakened 0.3% to 0.6437 against the greenback.

Several financial institutions have now moved their forecasts for the first Fed rate cut to July rather than June, aligning with updated market sentiment that sees the US central bank maintaining a more cautious stance on monetary easing.

Broader structural questions about the role of the US dollar in the global economy continue to draw attention, with some economists pointing to a gradual decline in dollar dominance over the past decade. Although the dollar remains the world’s leading reserve and trade currency, ongoing geopolitical tensions, rising US debt levels, and efforts by other nations to reduce reliance on the dollar may alter its long-term trajectory.

With input from the Wall Street Journal, the Financial Times, and the Economist.