Market Analytics and Considerations
Key Notes
On Monday, the dollar increased while the majority of Asian currencies sank as markets braced for eagerly anticipated indications on U.S. monetary and fiscal policy from a Federal Reserve meetings and a report on consumer inflation.
Amid mounting worries about a likely recession in 2023, which lowered demand for risky assets, the majority of regional units were still suffering losses from the previous week.
The Chinese yuan lost 0.3%, while the South Korean won and Malaysian ringgit both experienced losses of 0.5%, the biggest among their regional counterparts.
Concerns that a sharp increase in local infections will postpone a wider reopening have substantially overshadowed optimism regarding the withdrawal of anti-COVID measures in China. Analysts predict that when the nation emerges from almost three years of COVID shut downs, market volatility will rise.
However, a Chinese reopening would be advantageous for the Asian economies that rely on China as a trading bloc.
The Japanese yen dropped 0.2% as statistics revealed that producer price inflation surged more than anticipated in the nation, suggesting further stress on the economy in the months to come.
Additionally, in recent days, the yen has gained from the belief that the Bank of Japan will inevitably change its ultra-loose monetary policy as a result of high inflation.
Investors poised themselves for a possible stronger-than-expected consumer price index (CPI) data on Tuesday, which led to the dollar strengthening on Monday. According to information released this week, producer price inflation slowed down less than anticipated in November, indicating a linear behavior in the CPI.
Both the dollar index and greenback futures increased by 0.3% and were trading close to 105 points.
A higher-than-anticipated inflation figure could prompt the Federal Reserve to issue additional aggressive warnings on Wednesday following the end of its two-day meeting.
Firmer inflation may force the central bank to maintain rates higher for long periods of time than anticipated, even though this week’s rate increase is only likely to be 50 basis points.
Concerns about inflation possibly remaining tenacious in the near future increased as a result of strong November U.S. data. This sparked concerns about a likely U.S. recession in 2023, which recently hurt Asian currencies.
This year, the main drag on Asian currencies was an increase in U.S. interest rates as the spread among riskier and low-risk yields closed.
