U.S. dollar displays resilience in Friday’s trading session in Asia

The U.S. dollar displayed resilience on Friday in Asia as strong economic data increased fears that the Federal Reserve could maintain its aggressive monetary policy for longer.

The U.S. dollar index was at 104.37 against a basket of major currencies like the sterling and the euro. After rising overnight, however, the dollar returned some of its previous gains during a trading session in Asia.

Sterling gained 0.05 percent to trade at $1.2043, previously falling to a three-week low of $1.1993. The euro also strengthened slightly to $1.0606 or only raising by 0.06 percent as pressures from the energy crisis and the Ukraine War persisted.

The Australian dollar fell by 0.6 percent overnight but gained 0.13 percent to $0.6678 the next day. New Zealand’s dollar strengthened by 0.38 percent and traded at $0.62715. The currency previously fell 0.7 percent in Thursday’s trading session.

This year, the yuan is also experiencing a turbulence in the forex market. The offshore yuan also gained about 0.2 percent to 6.9975 a dollar. The offshore yuan even hit its lowest level since 2011 last September, causing the Chinese government to interfere.

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Reports also suggested that Russia planned to purchase yuan on the currency market in 2023 if it could meet its revenue expectations for the oil and gas sectors. It was a part of Russia’s plan to minimize dependency on Western currencies.

After the Bank of Japan’s announcement to extend its 10-year notes yield, the yen strengthened since the beginning of this week. Although it declined by 0.2 percent to 132.67 a dollar on Friday, the currency remained on track to achieve a three percent gain for the week.

Eyes on the Fed

Data released on Thursday showed that the rate of unemployment claims in the U.S. was lower than expected last week, indicating a robust job market. Another set of data published on the same day also confirmed that the U.S. economy managed to rebound in the third quarter after contracting the first two quarters of 2022.

Analysts said the two data sets might lead to the prolonged hawkish monetary policy by the Fed because it showed that the inflation pace had yet to go down to the expected level. The U.S. central bank adopts the interest rate hike method to tame inflation, which resulted from the COVID-19 pandemic.

“The market continues to bounce around on thoughts of what the Fed's going to do next," Kiwibank head economist Jarrod Kerr said.

“The market's in an interesting predicament at the moment, sort of trying to figure out when the last rate hike is, and at what level.”

The Fed aims to bring down inflation to two percent but the inflation indicators revealed that the central bank still had a long way to achieve its target. Meanwhile, economists and investors have raised concerns that an excess of rate hikes can push the U.S. economy into a recession.

Investors started to direct their funds into the U.S. dollar and avoid riskier assets like the stock market and crypto.

Wall Street slumps after the rally

Although Wall Street’s major indexes gained momentum on Wednesday, they slumped on Thursday following the publication of the inflation data. The Dow Jones lost 348.99 points or 1.05 percent, the S&P 500 fell by 56.05 points or 1.45 percent and the NASDAQ dropped by 233.25 points or 2.18 percent.

All 11 sectors in the S&P closed lower. Tech companies were the biggest losers of the session, including Micron Technology, which triggered selloffs following demand concerns. Tesla plunged almost nine percent due to lower demand.

For December, all major indexes are expected to close lower. The Dow is expected to fall 4.5 percent, the S&P index tumbles 6.3 percent and the NASDAQ falls 8.7 percent. Analysts said 2022 would be the worst annual performance for the stock market since the crisis in 2008.