In the wake of Wednesday’s revelation that British inflation had plummeted below expectations to an annual 3.9% in October, Sterling experienced its most significant drop against the US dollar in two months. Analysts attribute this decline to the anticipation of potential Bank of England rate cuts as early as May next year. The pound fell by 0.7% to $1.2638, prompting a cautious approach among traders during Thursday’s Asia session. Against the euro, the pound reached its lowest point in over three weeks at 86.68 pence, hovering near that level at 86.59. The Australian dollar also exhibited stability at £0.5334, following a six-month peak of £0.5355.
Market experts predict a similar easing trend in the upcoming release of Friday’s US core personal consumption expenditure (PCE) data, projecting a slowdown in the annual inflation rate to 3.3%, its lowest since 2021. Despite this, caution prevails in further dollar selling due to the greenback’s recent weakness and the already factored 150 basis points of Federal Reserve cuts for 2024.
OCBC currency strategist Christopher Wong in Singapore emphasized the prudence of adjusting positions and scaling back risks ahead of the event, especially with liquidity thinning as the festive season approaches. He noted that thin liquidity can exacerbate price movements in response to any unexpected data surprises.
Following heavy selling in the final hour of Wall Street equities trade, a ripple of risk aversion affected Asian markets, contributing to a subdued trading atmosphere. This risk-off sentiment favored the safe-haven yen, which rose approximately 0.5%, trading at 142.86 per dollar. The yen has faced an over 8% loss against the dollar in 2023, despite Japan’s growth projection increase for the fiscal year to 1.6%.
The euro maintained stability at $1.0952, while the Australian and New Zealand dollars traded just below their respective five-month highs from Wednesday. The Aussie stood at $0.6753, touching its highest point since July at $0.6779, while the kiwi traded at $0.6251.
The dollar index, down 1% for the year, exhibited marginal softness at 102.29 in Asia, with ten-year Treasury yields hitting a seven-month low of 3.847% overnight.
China’s yuan faced a slight slip to 7.1463 against the dollar as offshore yuan funding costs decreased, and China’s blue-chip stock index hovered near five-year lows.
In the cryptocurrency market, Bitcoin briefly surged above $44,000 on Wednesday and maintained stability at $43,598 on Thursday. In emerging markets, Indonesia’s rupiah remained steady at 15,525 to the dollar ahead of an impending central bank policy decision.