Asia FX weak, dollar steady after hawkish Fedspeak, strong labor data

Investing.com-- Most Asian currencies fell on Friday, while the dollar steadied from recent losses as hawkish signals from the Federal Reserve and strong U.S. labor data cast more doubts over early U.S. rate cuts.

The dollar index and dollar index futures both moved little in Asian trade, and were set for mild weekly losses, as they fell from three-month highs earlier in the week.

But the outlook for the greenback remained upbeat amid more signals that the Fed will keep rates higher for longer. 

Hawkish Fed comments, strong labor data further dent early rate cut bets 

Fed Governor Christopher Waller said on late-Thursday that he needed more evidence that inflation was cooling, before the central bank would consider interest rate cuts.

His comments were the latest among a slew of other Fed officials who said that the bank was in no hurry to begin trimming monetary policy. The minutes of the Fed’s late-January meeting had also reiterated this message earlier in the week. 

Waller’s comments came just hours after data showed jobless claims unexpectedly fell over the past week, signaling continued strength in the labor market, which gives the Fed even less impetus to cut rates early.

The prospect of higher for longer U.S. rates bodes poorly for Asian markets, as the gap between risky and low-risk yields narrows. This notion kept most regional currencies trading lower for the week. 

The CME Fedwatch tool showed traders further paring back expectations for May and June rate cuts by the Fed.

Yen above 150, on intervention watch

A market holiday in Japan kept regional trading volumes muted on Friday. But the yen remained above the 150 level to the dollar, even as Japanese ministers offered more warnings on potential intervention measures. 

The outlook for the yen was also somewhat soured by persistent concerns over a slowing Japanese economy, after it unexpectedly entered a recession in the fourth quarter. 

Levels above 150 yen had drawn record-high intervention by the Japanese government in 2022- a trend that could be repeated again if weakness in the currency persists. 

Among other Asian units, the Chinese yuan fell slightly amid continued focus on whether Beijing will unlock more stimulus measures to support the economy.

The South Korean won shed 0.2%, while the Singapore dollar was flat before key inflation readings due later on Friday. 

The Australian dollar was among the few gainers for the day, rising 0.2% as it extended a rebound from three-month lows.

The Indian rupee was flat but appeared to be moving further away from the 83 level. Sentiment towards India was aided by a strong purchasing managers index reading on the service sector, released on Thursday.