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Investing.com-- Most Asian currencies firmed slightly on Tuesday amid some optimism over improving U.S.-China trade relations, while the dollar drifted lower as markets awaited a widely expected interest rate cut by the Federal Reserve this week.
The Japanese yen led gains in the region as it recovered from steep losses logged in recent sessions. Focus was also on a meeting between Japanese Prime Minister Sanae Takaichi and U.S. President Donald Trump on Tuesday, and a Bank of Japan meeting later in the week.
The yen’s USD/JPY pair fell 0.3%.
The South Korean won lagged even as gross domestic product (GDP) data showed the economy grew more than expected in the third quarter, amid improving exports after Seoul and Washington signed a trade deal earlier this year. The won’s USD/KRW pair rose 0.4%.
Broader Asian currencies flitted between flat to mildly positive levels, retaining some momentum from Monday after signs of progress in U.S.-China trade relations sparked risk-on moves in markets.
Trump is now set to meet Chinese President Xi Jinping in South Korea later in the week.
Chinese yuan firms with Trump-Xi meeting on the horizon
The Chinese yuan’s USD/CNY pair fell 0.1% and was close to its lowest level since November 2024.
The currency had firmed steadily in recent months, amid a series of strong midpoint fixes by the People’s Bank. China was seen keeping the yuan strong to boost the appeal of its exports.
Heightened trade tensions between the U.S. and China in October did little to stem the yuan’s ascent, although these tensions were seen easing after Washington and Beijing said they had agreed to a framework trade deal.
Trump and Xi are now set to build on this deal when they meet in South Korea later this week.
Anticipation of the meeting, coupled with a host of other upcoming economic events, kept broader Asian currencies trading rangebound. The Australian dollar’s AUD/USD pair rose 0.1%, while the Singapore dollar’s USD/SGD and the Taiwan dollar’s USD/TWD fell slightly.
The Indian rupee’s USD/INR pair rose slightly after breaking back above the 88 rupee level on Monday. Focus was largely on more trade talks between Washington and New Delhi, as the latter grapples with steep tariffs over its Russian oil purchases.
Dollar soft with Fed rate cut on tap
The dollar index and dollar index futures both fell around 0.1% on Tuesday, extending declines from the prior session.
The dollar was hurt chiefly by growing conviction that the Federal Reserve will cut interest rates by at least 25 basis points at the conclusion of a two-day meeting on Wednesday.
Bets on a rate cut were cemented by soft consumer inflation data from last week, which showed inflation cooling slightly in September.
Broader uncertainties over the U.S. economy– especially a cooling labor market and an ongoing government shutdown– are also expected to invite more easing by the Fed.