Asia FX muted, dollar at 3-week high.
Most Asian currencies kept to a flat-to-low range on Thursday, while uncertainty over the Federal Reserve’s plans for interest rate cuts in 2024 saw the dollar rebound to a three-week high.
The minutes of the Federal Reserve’s December meeting provided little clarity on the bank’s plans for rate cuts this year, which further unsettled risk appetite after a weak start to 2024 for financial markets.
Asian currencies remained particularly sensitive to rate-cut anxiety, after having logged a largely dismal performance in 2023 on headwinds from higher interest rates. While regional currencies saw some relief towards the end of the year, the recovery was now on ice.
The Japanese yen moved little as local markets reopened after an extended new year’s holiday. Purchasing managers index (PMI) data showed that Japanese economic activity remained fragile, as the manufacturing sector remained in contraction in December.
Gold slips below $2,050.
Gold prices rose slightly in Asian trade on Thursday, but hovered below key levels as the dollar rebounded on growing doubts over exactly when the Federal Reserve will begin trimming interest rates.
Anticipation of key nonfarm payrolls data also kept investors largely wary of buying outside the dollar, which presented more headwinds to non-yielding assets such as gold.
The yellow metal saw a strong run-up in the last few days of 2023, amid growing optimism that the Fed could begin cutting rates by as early as March 2024.
But the metal was hit with some profit-taking at the beginning of the new year, while traders also somewhat trimmed expectations on early rate cuts from the central bank.
Spot gold rose 0.1% to $2,043.68 an ounce, while gold futures rose 0.4% to $2,050.95 an ounce by 00:24 ET (05:24 GMT). Both instruments tumbled about 1% in the first two days of 2024.
Gold deepened its losses on Wednesday, while the dollar extended a rebound after the minutes of the Fed’s December meeting gave few cues on when the bank would begin trimming rates this year.
Oil extends gains on Middle East supply worries.
Oil prices rose on Thursday, adding to solid gains in the previous session on persisting concerns over Middle Eastern supply following disruptions at a field in Libya and heightened tension around the Israel-Gaza war.
Brent crude rose 38 cents, or 0.5%, to $78.63 a barrel by 0440 GMT, while U.S. West Texas Intermediate crude futures rose 52 cents, or 0.7%, to $73.22.
Both benchmarks rose by around 3% to settle higher for the for the first time in five days on Wednesday, with WTI seeing the biggest daily percentage gain since mid-November.
“A confluence of headlines around further tensions in the Red Sea and a full shutdown of Libya’s Sharara oilfield from local protests have renewed concerns about global oil supply disruptions,” said Yeap Jun Rong, market strategist at IG.
On Wednesday, local protests forced a full shutdown of production at Libya’s Sharara oilfield, which can produce up to 300,000 barrels per day. The field, one of Libya’s largest, has been a frequent target for local and broader political protests.
Earlier on Tuesday, Hamas’ deputy leader was killed in a strike in Beirut – the first strike to hit the Lebanese capital in almost three months of near daily fire between the Israeli military and Iran-backed Hezbollah that had been confined to the border region.
Shipping concerns in the Red Sea after Yemen’s Iran-backed Houthis said on Wednesday they had “targeted” a container ship bound for Israel. U.S. Central Command said the militant group had fired two anti-ship ballistic missiles in the southern Red Sea the previous day.
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