Most Asian currencies slipped on Wednesday as the U.S. dollar mounted a modest recovery from a near four-year low reached in the previous session, with investor attention focused on an impending Federal Reserve interest rate decision.
The pullback was modest and came against the backdrop of substantial weekly gains for many regional units after the dollar's earlier decline. The Japanese yen has been one of the main beneficiaries of the dollar's weakness this week, supported by heightened market talk that Tokyo may intervene to limit excessive currency moves following warnings from senior officials.
Dollar movement and Fed focus
In Asian trading the dollar index rose by nearly 0.4%, while futures on the dollar index were down around 0.1%. The greenback had plunged to its weakest level since February 2022 on Tuesday amid growing uncertainty about the U.S. economic outlook and the policy stance of President Donald Trump. Market selling of the dollar intensified after Mr. Trump appeared to dismiss concerns about the currency's recent softness.
All eyes are now on the conclusion of the Fed meeting later in the day. The central bank is widely expected to hold its policy rate unchanged at 3.75%. Investors will scrutinize any comments from Fed Chair Jerome Powell about the likely path of future rates, and whether White House commentary might increase pressure for policy easing. In a Tuesday address Mr. Trump said he was close to naming a nominee to replace Powell and asserted that rates would fall sharply under new leadership at the Fed, while continuing to criticize Powell.
Australian dollar reacts to inflation, RBA bets rise
The Australian dollar retreated 0.3% against the dollar on Wednesday, stepping back from a near three-year high it had hit earlier. Australian consumer price index inflation for December and the fourth quarter came in hotter than expected, data showed, which in turn raised expectations that the Reserve Bank of Australia will move to tighten policy at its upcoming meeting next week.
Analysts at ANZ and Capital Economics signalled that they now expect a 25 basis point increase at the RBA's next meeting, although they remain divided on whether additional rate rises will follow.
Yen, yuan and other regional moves
Across the rest of Asia, currency moves were mixed but generally represented a partial retreat from the sharp swings seen earlier in the week.
- The USD/JPY pair rose about 0.3% on Wednesday after having fallen sharply over the prior days. That prior weakness had intensified speculation that Japanese authorities could step in to limit volatility in the yen, particularly after Prime Minister Sanae Takaichi warned against excessive swings in the currency. Markets are also preparing for the possibility of coordinated foreign-exchange intervention involving U.S. and Japanese authorities aimed at stemming yen weakness.
- The onshore Chinese yuan was an exception on Wednesday, with the USD/CNY pair slipping roughly 0.1% to a 31-month low. The yuan has continued to strengthen in recent months amid ongoing support from Beijing.
- The Singapore dollar edged lower versus the dollar, with the USD/SGD pair rising about 0.1%.
- The Taiwan dollar also eased against the dollar, with the USD/TWD pair up roughly 0.2%.
- The Indian rupee remained an outlier among peers, offering little respite from the dollar's recent weakness as doubts over the Indian economy and questions around a U.S. trade deal pressured the currency. The USD/INR pair rose about 0.1%, staying above 91 rupees and near record-high levels.
Outlook and context
For now, the immediate driver for currency traders remains the Fed meeting and any accompanying commentary on the likely path for U.S. rates. In parallel, domestic data and central bank expectations, such as the hotter-than-expected Australian inflation print that increased bets on an RBA rate move, continue to shape local currency dynamics. At the same time official warnings from Tokyo and reports of possible coordinated intervention are keeping the yen closely watched by market participants. The Chinese yuan's steady appreciation reflects continued policy support from Beijing, while the Indian rupee's limited response to dollar weakness underscores ongoing domestic and external uncertainties that weigh on that market.
Given the concentration of focus on central bank decisions and officials' statements, currency markets may continue to show episodic volatility triggered by policy announcements, official warnings and data releases.