Forex News – 2024-06-03

Most Asian currencies steadied on Monday, recovering some of their recent losses against the dollar. This stabilization came after inflation data met expectations, increasing the likelihood of interest rate cuts and causing significant declines in the greenback.

The Indian rupee was a standout performer, strengthening sharply following exit polls for the 2024 general election, which suggested a third consecutive win for the incumbent BJP party.

Expectations of potential interest rate cuts by the European Central Bank and the Bank of Canada this week also led traders to favor risk-driven assets.

However, gains in regional currencies were limited by ongoing caution regarding U.S. interest rates, especially with key U.S. labor data and a Federal Reserve meeting on the horizon.

Dollar Nurses Losses After PCE Data Matches Expectations

The dollar index and dollar index futures both fell slightly in Asian trade on Monday after experiencing steep losses on Friday.

The decline in the greenback followed the release of PCE price index data, the Fed’s preferred inflation gauge, which cooled as expected in April, though only slightly.

This data sparked expectations that the Fed might begin cutting rates in September. Traders are currently pricing in a 47% chance of a 25 basis point cut in September, along with a 45% chance of a hold, according to the CME Fedwatch tool.

These expectations will be tested in the coming days, with key nonfarm payrolls data due this Friday and a Fed meeting next week.

Most Asian currencies remained muted on this anticipation. The Japanese yen’s USD/JPY pair hovered above 157, impacted by weaker-than-expected capital spending data.

The Australian dollar’s AUD/USD pair fell 0.1%, while the Singapore dollar’s USD/SGD pair saw little movement.

The South Korean won’s USD/KRW pair fell 0.3%, while the Chinese yuan’s USD/CNY pair rose 0.1%.

The yuan lagged somewhat behind its peers after mixed purchasing managers index data. Private PMI data on Monday showed the country’s manufacturing sector expanded in May, contrasting with government PMI data from last week which indicated a contraction.

Indian Rupee Strengthens Amid Election Optimism, USD/INR Slides

The Indian rupee was a notable performer among its Asian peers on Monday, with the USD/INR pair—measuring the number of rupees needed to buy one dollar—dropping 0.5% to 83.059 rupees.

Exit polls showed the NDA alliance, led by the BJP, was set to largely sweep the 2024 elections, signaling a third consecutive term for Prime Minister Narendra Modi.

Investors have largely cheered the BJP’s business-first measures over the past five years, which have driven significant growth in the Indian economy.

Focus this week is also on a Reserve Bank of India meeting, which could further influence the rupee’s performance.

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