Asia FX sinks on weak China GDP, rate

-- Most Asian currencies retreated on acy foreign exchangeWednesday, while the dollar stood at a one-month high amid increasing doubts over early interest rate cuts by the Federal Reserve, while weak Chinese growth data also dented sentiment.

Chinese Q4 GDP misses estimates, economic outlook dim

China’s economy in the fourth quarter, and barely edged past government estimates of 5% for . The reading showed that a post-COVID rebound gained little momentum over the past year, and set a middling tone for China in 2024.

The fell 0.1%, although further losses in the currency were held back by a stronger-than-expected daily midpoint fix by the People’s Bank of China, according to Reuters data.

Other economic indicators for December also pointed to a weak outlook for the Chinese economy. While and edged past expectations, Chinese grew less than expected, while also unexpectedly rose.

Concerns over China pulled down most currencies with trade exposure to the country. The fell 0.2%, while the slid 0.6%.

The fell 0.2% as data showed the country’s shrank more than expected in December, amid weak Chinese demand.

But the biggest weight on Asian currencies was increasing doubts over early interest rate cuts by the Fed, following somewhat hawkish comments from Governor Christopher Waller on Tuesday.

The was the worst-hit by Waller’s comments, sinking 0.1% on Wednesday after a 1% tumble in overnight trade. The yen also weakened past the 147 level for the first time in more than one month.

The yen was also dented by increasing expectations that the will maintain its ultra-dovish course when it meets next week. Uncertainty over rebuilding efforts in the wake of a devastating earthquake, coupled with expectations for a this Friday furthered this notion.

Dollar at one-month high as Waller talks down early rate-cut bets

The and rose slightly in Asian trade on Wednesday after surging to an over one-month high in overnight trade.

The greenback was boosted chiefly by the saying that while interest rate cuts were likely to happen this year, the central bank was not considering any in the near-term, citing continued resilience in the U.S. economy.

Waller’s comments saw traders scaling back bets for a 25 basis point rate cut in March, according to the . Treasury yields also shot up after his comments, with the breaching 4% once again.

Higher-for-longer rates bode poorly for Asian currencies, given that they diminish the appeal of risk-heavy, high-yielding assets. This notion had battered regional currencies over the past two years, and is expected to remain in play until the Fed signals a timeline for its planned rate cuts.

Focus is now on U.S. and data, due later on Wednesday, for more cues on the world's largest economy.

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