Investing.com– Most Asian currencies weakened Wednesday and the dollar held near three-month highs as uncertainty about U.S. interest rates and the upcoming presidential election left traders risk-averse.
The local currency has suffered losses over the past two weeks as signs of resilience in the U.S. economy have deepened bets that the Federal Reserve will cut interest rates at a slower pace.
The Japanese yen was hit hardest by this outlook, hitting its lowest level in nearly three months this week. Expectations about the Japanese general election and the Bank of Japan meeting also pressured the yen.
There is also focus on more signs of Chinese stimulus, with the yuan holding at a two-month low.
As yields rose, the dollar reached a nearly three-month high.
Both rose about 0.1% in Asian trade, extending recent gains as traders expected the Federal Reserve to slow its rate cuts.
Traders were pricing in an 85.9% chance of a 25 basis point cut in November and a 14.1% chance of no change.
This notion is further strengthened by recent data showing that the US economy remains resilient and supports expectations for US inflation. Treasury yields have surged on expectations of relatively higher interest rates, hitting a three-month high this week.
The value of the dollar also rose ahead of the 2024 presidential election, which is about two weeks away. Republican candidate Donald Trump appears to have a lead over Vice President Kamala Harris, with recent polls and prediction markets showing a tight race still expected.
Yen weakness continues as USDJPY approaches 152.
The yen continued to rapidly unwind gains of the past two months, rising 0.5% on Wednesday to 152 yen, its highest level since late July.
The currency fell as doubts grew about the BOJ’s ability to raise interest rates further, especially in the face of a potential leadership change in the Japanese government. Japan’s general election is scheduled to be held this Sunday, and the ruling Liberal Democratic Party faces the possibility that it will need a coalition government to remain in power.
The BOJ is also scheduled to meet next week, but is unlikely to raise interest rates. Before that, you have until this Friday.
Broader Asian currencies were mostly weaker. China’s yuan rose 0.1%, with focus on China’s upcoming National People’s Congress meeting for further clues on fiscal spending.
The Singapore dollar exchange rate rose 0.1%, while the Australian dollar exchange rate was unchanged.
The Korean won exchange rate rose 0.3%, and the Indian rupee exchange rate was close to an all-time high.
