Most Asian currencies traded in a narrow range on Friday, with the dollar’s overall strength and a subdued risk backdrop limiting broader moves. Market attention centered on upcoming policy and political developments - notably a Sunday national election in Japan and the nomination of Kevin Warsh as the next U.S. Federal Reserve chair - while fresh U.S. labor market readings also influenced intraday flows.
Regional trading was muted overall, with currencies mostly restrained as investors balanced mixed cues. Weak risk appetite generally weighed on Asian currencies, even as a set of softer U.S. labor reports on Friday trimmed some of the dollar’s earlier gains.
In India, the USD/INR pair firmed modestly after the Reserve Bank of India left its benchmark interest rate unchanged at 5.25%, as widely expected. The central bank also raised its inflation forecasts for the quarters ahead, and the combination of an unchanged policy rate and higher inflation projections coincided with the slight firming in the pair.
Yen edges up but remains vulnerable ahead of lower house vote
The Japanese yen recovered some of its recent losses on Friday, with the USD/JPY pair slipping about 0.3% during the session. That move, however, sits against a backdrop in which the pair traded roughly 1.2% higher over the week.
Investor focus has turned to Sunday’s lower house election in Japan, where polls indicated that Prime Minister Sanae Takaichi’s conservative party was poised to secure a decisive win. A strengthened lower house majority would give the prime minister greater scope to pursue the fiscal stimulus measures she favors, including wide-ranging tax cuts and expanded government spending.
Those proposed policies have stoked market concern about Japan’s already elevated debt levels and prompted recent stress in domestic bond markets as traders grew wary of a spike in government borrowing costs. Such worries helped drive a period of yen weakness in recent weeks, and even sporadic threats of currency intervention provided only short-lived support. The USD/JPY rate has since returned to levels that previously triggered interventionary action.
Dollar momentum mixed but set for weekly gains
Across markets, the dollar index and futures slipped slightly on Friday, pressured by a sequence of weaker U.S. labor market readings. Data showed that U.S. companies cut roles in January at the fastest pace since the 2009 great recession, according to Challenger job cuts figures. Weekly jobless claims rose by more than expected, and December job openings also fell short of forecasts.
Those labor market signs added to expectations that U.S. interest rates could come under downward pressure, putting some near-term pressure on the dollar. At the same time, market participants were weighing how monetary policy might evolve under Kevin Warsh, President Donald Trump’s nominee for Fed chair. Warsh is generally perceived as a less dovish option for the role, a view that underpinned some dollar support amid the broader uncertainty.
Other Asian currencies - mixed moves, muted weekly performance
Elsewhere in the region, the Chinese yuan was a notable outlier. The USD/CNY pair fell slightly on Friday, extending a run that has seen the yuan notch weekly gains against the dollar. The pair was down about 0.2% for the week and was on track for what the market was viewing as an 11th consecutive week of declines in the USD/CNY rate, with firm midpoint fixes from the People’s Bank of China cited as a supporting factor.
The Australian dollar strengthened against the greenback on Friday, with AUD/USD up about 0.3% after Reserve Bank of Australia Governor Michele Bullock made hawkish-leaning remarks that reinforced bets on additional rate hikes following a 25 basis point increase earlier in the week.
Other regional moves were modest: USD/SGD fell roughly 0.1% on the day, while USD/KRW declined around 0.3%.
Overall, Asian currencies posted slight moves intraday but were on track for a relatively muted weekly outcome, shaped by a mix of political developments, central bank signals and U.S. labor market data that created offsetting pressures on the dollar and regional exchange rates.