©Reuters
Investing.com – Most Asian currencies rose slightly during New Year’s trading on Monday, marking a positive start to the new year as investors bet on a slowdown by the US Federal Reserve and weakness.
It extended last week’s strong gains, rising 0.1% to 130.96, the strongest level against the dollar in five months. While the currency slipped more than 15% in 2022, it recovered some losses towards the end of the year, especially after the Bank of Japan unexpectedly struck a tightening deal at its December meeting.
However, the Japanese economy is poised for increasing headwinds, especially as high inflation and uncertainty about the COVID-19 pandemic continue to hold back growth. Last month’s data also showed that Japanese consumer price inflation rose to a 41-year high in November.
While external trade fell 0.1%, economic readings released over the weekend showed manufacturing activity in the country contracted further in December as the country grappled with an unprecedented rise in coronavirus infections. COVID-19. China has seen a huge increase in COVID-19 cases after easing most of its anti-COVID measures in December.
However, markets are positioned for an eventual economic recovery in the country, which re-emerges from nearly three years of strict lockdown measures that severely hampered growth.
The yuan, along with most Asian currencies, posted huge losses in 2022 as the Federal Reserve began raising interest rates. And with US interest rates still rising through 2023, this trend is expected to continue.
The journey of the dollar in 2022
Also, US dollar and US dollar index futures saw sparse trading on Monday due to New Year’s holidays in most parts of the world. But the dollar gained nearly 8% in 2022 as the Federal Reserve embarked on one of its more aggressive rate-hiking cycles to curb runaway inflation.
However, the dollar has weakened in recent months after data showed the US has likely peaked, which should prompt a slower pace of interest rate hikes from the Fed. The central bank has already raised interest rates by a relatively less 50bps in December and is expected to raise rates another 25bps in February.
Indian rupee
The Indian rupee also rose 0.1% after posting losses in 2022, with pressure on the currency coming mainly from India’s large trade deficit and reliance on oil imports. While the country’s economy performed well in 2022, there are now doubts as to whether this outperformance will carry over into next year.
Korean won
The South Korean won fell 0.6% after data showed the country’s trade balance remained negative in December, with exports and imports contracting sharply.
