US yields were higher and the dollar’s overnight gains against the euro and yen were consolidated in early-morning trade in Asia, holding the euro below US$1.18.
The Aussie dollar was trading at US$0.7045 ahead of employment data, where strong numbers could ramp up expectations for future rate hikes.
The New Zealand dollar was smarting, after notching its steepest percentage drop since last April’s tariff blitz, after the central bank took a cautious line about future interest rate hikes, undershooting market expectations.
The kiwi had dropped nearly 1.4% overnight and was just under US$0.60 in morning trade. The euro hovered at US$1.1788, having also taken a knock on a report European Central Bank President Christine Lagarde plans on leaving before her term ends in October next year. Sterling sat at US$1.3497.
The Fed minutes showed policymakers divided over where to take US rates and suggest that the next chairman, due to start in May, will have a hard time pushing through rate cuts.
Several policymakers are expecting productivity gains to dampen inflation, the minutes said, but “most participants” cautioned progress may be slow and uneven. Several even indicated hikes are possible if inflation stays above target.
“This suggests there isn’t a great deal of urgency to cut rates again, at least not until after current chair (Jerome) Powell’s term ends in May,” said Peter Dragicevich, Asia-Pacific currency strategist at Corpay.
Markets are looking ahead to global purchasing managers’ index figures and US gross domestic product data, due on Friday.
Yen drop as US investment spend begins
The yen took a knock on the stronger dollar overnight, and as the Trump administration announced projects valued at US$36 billion as the first investments under Japan’s promised US$550 billion US investment pledge.
It was down 1% overnight and steady at 154.78 to the dollar on Thursday, a retreat from the 152 level that it had tested last week in the wake of Prime Minister Sanae Takaichi’s landslide electoral victory.
The yen has been sliding for years on a combination of low local interest rates and concern about Japan’s budget outlook, but has lately found support on hopes for economic growth.
“Direct Japanese investment into the US will be a key watch factor this year, and one which adds to the very mixed picture on USD/JPY,” said Chris Turner, global head of research at ING.
“The question for FX markets this year is whether this investment proves a supportive dollar flow or something like Japan’s FX reserves are used to guarantee new USD loans and avoid pressure on the yen. The latter seems to be the preferred outcome for Tokyo.”
Holidays for Hong Kong, China and Taiwan lightened Asia trade and the yuan was steady at 6.89 to the dollar in offshore trade.