Most Asian currencies and the U.S. dollar showed little movement on Monday as traders weighed the odds of a Federal Reserve rate cut later this month, ahead of important U.S. payroll figures scheduled for the end of the week.
With U.S. markets closed for a public holiday, investors turned their attention to regional economic data, including factory activity from Japan and China. The U.S. Dollar Index, which tracks the greenback against a basket of major currencies, slipped 0.1% during Asian trading after finishing largely flat last week. Dollar Index futures were mostly unchanged as of 04:59 GMT.
Fed Rate Cut Speculation Remains Central
Forex volatility has been limited as markets cautiously digest the potential for Fed easing. The CME FedWatch tool shows an 89% probability of a 25-basis-point cut at the September 16–17 Federal Open Market Committee meeting. The possibility of a rate cut was reinforced by Fed Chair Jerome Powell’s remarks at Jackson Hole, emphasizing that policymakers stand ready to adjust policy if inflation continues to ease and the labor market slows.
Friday’s U.S. core PCE price index, the Fed’s preferred inflation measure, rose 0.3% month-on-month, bringing the annual rate to 2.9%, the highest in five months. The reading aligned with expectations, indicating that tariffs imposed by President Donald Trump have not significantly passed through to consumer prices, despite recent surprises in producer inflation. Investors are now focused on Friday’s August nonfarm payroll report to gauge the likelihood of a September rate cut.
Asian Currencies Largely Stable; PMIs Show Divergent Trends
The Indian rupee edged up 0.1% to 88.25 per dollar, near its record high of 88.31 on Friday. The Japanese yen remained mostly unchanged, while a private survey suggested Japan’s factory activity contracted in August amid weaker export orders affected by U.S. tariffs.
In China, the onshore yuan (USD/CNY) held steady, and the offshore yuan (USD/CNH) ticked 0.1% higher. A RatingDog survey indicated that factory activity expanded at the fastest pace in five months, contrasting with the official PMI that reported a fifth consecutive contraction. The mixed readings point to tentative signs of a rebound in Chinese industrial demand.
Elsewhere, the South Korean won rose 0.3%, the Singapore dollar was flat, and the Australian dollar ticked 0.1% higher against the dollar.
Markets are also watching Fed independence closely, following President Trump’s attempt last week to remove Federal Reserve Governor Lisa Cook over alleged mortgage fraud in 2021. Cook has rejected the move and filed a lawsuit challenging her dismissal.
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