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Asia FX steadies but recession fears spell weekly losses

Published 16/12/2022, 04:52

By Ambar Warrick

Investing.com -- Most Asian currencies rose slightly on Friday but were set to end the week lower as hawkish signals from major central banks and a slew of weak economic readings ramped up fears of a global recession going into 2023.

The Japanese yen was among the best performers for the day, rising 0.5% after data showed that overall business activity in the country barely managed to expand in December, with strength in the services sector offsetting a pronounced slowdown in manufacturing.

But the currency was also set to lose 0.5% this week, with pressure coming mainly from a stronger dollar.

The greenback strengthened against most Asian currencies this week after the Federal Reserve hiked interest rates as expected and signaled that borrowing costs will likely peak at higher-than-expected levels as it continues to act against inflation.

A batch of weaker-than-expected U.S. economic data also dented sentiment, even as the country logged smaller inflation figures for November. But price pressures are still trending well above the Fed’s target range.

The dollar index and dollar index futures traded down about 0.9% for the week, as hawkish signals from the European Central Bank and the Bank of England boosted the euro and the pound.

The prospect of rising interest rates in major economies also brewed concerns over a potential recession, denting sentiment towards risk-heavy assets.

China’s yuan rose 0.1%, taking some support from optimism over an eventual economic reopening in the country. But in the near-term, China faces an unprecedented spike in COVID-19 cases, which analysts warned could delay a reopening and further disrupt economic activity.

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The yuan was also set to lose about 0.2% this week, snapping two straight weeks of gains. A swathe of weak economic data highlighted growing economic cracks in China due to the pandemic.

The Singapore dollar rose 0.3%, but was set to close the week lower as data showed the country’s key non-oil exports shrank far more than expected in November. This saw the country’s trade surplus contract further, heralding more weakness in the island state’s economy.

The Thai baht was muted on Friday, but was the worst-performing Asian currency this week with a 1.2% drop, after the minutes of the central bank’s November meeting signaled that future rate hikes will be gradual and measured.

The Indian rupee also lost 0.5% this week after weaker-than-expected inflation figures for November indicated a slower pace of rate hikes by the Reserve Bank.

Among Antipodean currencies, the Australian dollar slumped 1.2% this week as weakness in major trading partner China heralded more uncertainty for the country’s economy.

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