Asia FX Steady as Fed Rate Cut Bets Rise; Yen Strengthens on BOJ Hawkish Signals

Asian currencies were mostly stable on Monday as traders weighed rising expectations of a December U.S. Federal Reserve rate cut and digested another round of weak manufacturing data across the region. Market sentiment shifted after a series of softer U.S. economic indicators reinforced views that growth is cooling and inflation is easing, pushing money-market pricing to imply nearly an 85% to 90% chance of a quarter-point Fed rate cut at the December 9–10 meeting—up significantly from around 40% only a week earlier.

The U.S. Dollar Index hovered near a two-week low in early Asian trading, with futures also steady as investors reassessed the economic outlook. Despite the slight dip in the dollar, broader positioning remained cautious due to the absence of key labor and inflation data during the U.S. government shutdown period.

Across Asia, major currencies saw muted moves. The Chinese yuan’s onshore USD/CNY pair held largely unchanged, while the South Korean won slipped 0.2% against the dollar. The Indian rupee gained around 0.2%, and the Singapore dollar was mostly flat. The Australian dollar edged down 0.1% as traders balanced global risk sentiment with local economic concerns.

Weak purchasing managers’ index readings added pressure to regional markets. China’s factory activity contracted for the eighth straight month, reflecting soft domestic demand and weaker external orders, partly influenced by U.S. tariff pressures. Japan’s manufacturing sector also remained below the 50-point threshold for a fifth month, and South Korea’s PMI showed continued contraction driven by sluggish exports.

The Japanese yen outperformed most regional currencies, with the USD/JPY pair falling about 0.4%. The yen strengthened toward the mid-155 range after Bank of Japan Governor Kazuo Ueda signaled that policymakers would weigh the “pros and cons” of a rate hike at the December 18–19 meeting. The hawkish tone boosted expectations of a potential BOJ rate increase, lifting Japanese government bond yields as traders priced in tighter monetary policy.