Dollar Strengthens on Fed's Signal of Rate Hikes; Yuan and Kiwi Experience Declines in Asian Markets

In Asian trading, the U.S. dollar exhibits a notable rally following the Federal Reserve's indication of future rate hikes. However, the currencies of China and New Zealand face downward pressure due to signs of economic weakness in those regions.

Investor attention is now shifting towards upcoming central bank decisions later this week, which hold potential implications for the market.

The dollar index strengthens by 0.28% to reach 103.21, recovering from its four-week low of 102.66 observed on Wednesday. The recovery comes after the Fed's decision to maintain interest rates while signaling a possible 50 basis point increase by the end of December.

The European Central Bank is expected to announce its next rate decision on Thursday, with market expectations leaning towards a 25 basis point hike and another increase in July, followed by a pause for the remainder of the year.

On Friday, the Bank of Japan will release its decision, anticipated to maintain an ultra-dovish stance and yield curve control settings.

Bank of Singapore currency strategist Sim Moh Siong suggests that the Fed's announcement implies a "hawkish pause" and signals the tightening of monetary policy. This stance could potentially support the dollar in the near term.

Amid these developments, the euro experiences a 0.12% decline against the dollar, settling at $1.0818. Conversely, it strengthens by 0.35% against the Japanese yen, reaching 152.26 yen.

The yen, on the other hand, weakens against the dollar, dropping 0.46% to $140.735.

New Zealand's kiwi dollar faces a decline of 0.68% against the dollar, reaching $0.6170. This decline comes in the wake of data revealing that the country's economy entered a technical recession in the first quarter.

China's yuan also slides, experiencing a 0.1% decline and reaching 7.1872 per dollar, marking its weakest point since November. This decline follows the People's Bank of China (PBOC) decision to cut the borrowing costs of its medium-term policy loans for the first time in 10 months. The PBOC had also reduced the short-term policy lending rate earlier in the week.

Bank of Singapore's Sim Moh Siong points out that there is a high expectation for broader stimulus measures to support China's economy following the recent rate cut.

Also Read: Dollar Stumbles Ahead of Inflation Data, Yuan Slips on Rate Cut