By Ambar Warrick
Investing.com — Most Asian currencies retreated on Tuesday, while the dollar firmed slightly as markets hunkered down ahead of a Federal Reserve interest rate decision this week, while lingering fears of a banking crisis also weighed on sentiment.
The
South Korean won
was the worst performer for the day, down 0.6% as soft
inflation
and
trade
data gave the Bank of Korea more impetus to keep interest rates on hold.
China’s yuan
fell 0.1%, while the
Thai baht
led losses across Southeast Asian currencies with a 0.5% drop.
The
Japanese yen
rose 0.1% in holiday-thinned trade. But the currency was sitting on strong gains in recent sessions as fears of a U.S. and European banking crisis spurred safe haven demand.
While U.S. and European regulators rolled out liquidity measures to support the banking system, markets still remained on edge over the collapse of more banks, as the sector struggles with a sharp rise in interest rates.
The dollar saw limited safe haven demand as markets bet that the Federal Reserve could potentially soften its hawkish rhetoric to stem further pressure on the banking system. This also saw the greenback trade lower over the past week, as markets pivoted into traditional safe havens such as
gold
and other precious metals.
But the
dollar index
and
dollar index futures
rose about 0.1% each on Tuesday, ahead of the conclusion of the Fed’s two-day policy meeting on Wednesday. The central bank is widely expected to
raise rates by 25 basis points
, given that
U.S. inflation
is still trending well above its target range.
The central bank’s outlook on monetary policy will also be closely watched in the face of a potential banking crisis. Other Asian currencies retreated amid this uncertainty, with the
Indian rupee
and
Singapore dollar
down 0.2% each.
The
Australian dollar
fell 0.4% after the
minutes
of the Reserve Bank’s March meeting showed that policymakers were considering an eventual pause in interest rate hikes, amid
easing inflation
and pressure on economic growth.
But the bank is likely to keep raising rates in the near-term, the minutes showed, with inflation only expected to reach the RBA’s target range by mid-2025.