Asian Currencies Rise as Softer US Data Tempers Fed Rate Hike Bets

Most Asian currencies strengthened on Monday as the U.S. dollar eased on growing sentiment that the Federal Reserve may be finished with its interest-rate-hike cycle. The Japanese yen gained even as new data showed the nation's economy expanded less than forecast in the second quarter.

Dollar Softens on Shifting Fed Outlook

The U.S. Dollar Index, which measures the greenback against a basket of currencies, fell 0.1% to 99.52 in Asian trading, extending losses from Friday. The decline follows a series of weaker-than-expected U.S. economic reports, including recent nonfarm payrolls and inflation data, that have cooled expectations for further monetary tightening.

According to the CME Group's FedWatch tool, markets are now pricing in a 70% probability that the central bank will hold rates steady at its September meeting. Investors are looking ahead to the release of the Fed's July meeting minutes on Wednesday and the Jackson Hole economic symposium later this month for further signals on the U.S. rate outlook.

Yen Rises Despite Weak GDP Data

In a counterintuitive move, the Japanese yen strengthened, with the USD/JPY pair falling 0.2% to near 159 yen. The currency's resilience came despite a government report showing Japan's economy grew at an annualized rate of 1.1% in the second quarter, significantly missing market forecasts of 2.0%.

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The slowdown was attributed to weak private consumption and a decline in capital spending, according to the official data. However, exports remained a bright spot, supported by solid demand for hybrid vehicles and semiconductor equipment.

Performance Across the Region

Other regional currencies also posted gains against the weaker dollar, though the Indian rupee was a notable exception.

• The Australian dollar (AUD/USD) rose 0.2%.
• The South Korean won (USD/KRW) saw its pair fall 0.2%.
• The Singapore dollar (USD/SGD) edged down 0.1%.
• The onshore Chinese yuan (USD/CNY) traded largely flat.

The Indian rupee faced downward pressure, with the USD/INR pair rising 0.2%. The currency's weakness was linked to a decision by the Reserve Bank of India to shorten the deadline for a discounted foreign-exchange swap facility after deposit inflows exceeded expectations.