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Asian FX Stable Amid Rate Uncertainty; Yen Breaches Intervention Level Ahead of BOJ Meeting

Asian currencies largely maintained stability on Thursday within a narrow range, while the dollar remained steady amid lingering uncertainty surrounding U.S. interest rates ahead of crucial economic indicators in the upcoming days.

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The Japanese yen experienced prolonged weakness, with the USDJPY pair reaching new 34-year highs before the Bank of Japan’s (BOJ) meeting scheduled for Friday. Surpassing a level widely anticipated to prompt intervention from the Japanese government, the currency pair settled around 155.44 in Asian trade.

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USDJPY Surpasses Intervention Threshold; BOJ Meeting Awaited

The USDJPY pair surged beyond the 155 level during overnight trading, triggering concerns about potential intervention by the Japanese government in the currency market. Despite expectations, officials issued verbal warnings without taking substantial action, allowing USDJPY to sustain its gains.

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The yen’s decline heightened anticipation for the upcoming BOJ meeting, where interest rates are expected to remain unchanged following a historic rate hike in March. However, recent yen weakness, coupled with prospects of higher wages and persistent inflation, kept traders vigilant for any hawkish signals from the BOJ.

The central bank might revise its inflation outlook and reaffirm plans for further interest rate hikes in 2024, potentially bolstering the yen. Nevertheless, the extent of the yen’s recovery remains uncertain amid ongoing concerns about prolonged elevated U.S. interest rates.

Dollar Steadies Amid Rate Expectations

In Asian trading, the dollar index and dollar index futures stabilized after a modest recovery overnight, maintaining proximity to over five-month highs reached last week. Traders adjusted their expectations, gradually discounting the likelihood of early interest rate cuts by the Federal Reserve.

Upcoming economic data releases this week are expected to provide additional insights into the trajectory of interest rates. Investors are keenly awaiting the first-quarter U.S. gross domestic product data scheduled for Thursday, which will offer insights into the resilience of the U.S. economy in early 2024.

Of particular interest is the Personal Consumption Expenditures (PCE) price index data, the Fed’s preferred inflation gauge, slated for release on Friday. Anticipation surrounding these data releases kept most Asian currencies subdued.

The South Korean won’s USDKRW pair remained relatively unchanged despite better-than-expected GDP data for the first quarter. The Singapore dollar’s USDSGD pair edged lower by 0.1%, while the Chinese yuan’s USDCNY pair maintained stability amidst robust fixes by the People’s Bank of China.

The Indian rupee’s USDINR pair lingered below record highs set earlier in April, with traders exercising caution due to the commencement of India’s 2024 general elections this week.

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