Asian currencies recover on weak dollar

The dollar recorded some volatility on Tuesday, but remained relatively stable following significant losses over the past two days.

The focus is on the FOMC minutes, as traders seek insights into the Fed’s next decision on interest rates. The continued fall in treasury yields, driven by market belief that the Fed’s rate hikes have ceased, is adversely affecting the dollar.

The yen has maintained its lead among major currencies for the second consecutive day, bolstered by strong demand for Japanese bonds, especially after the recent 20-year government bond auction.

The narrowing spread between long-term U.S. and Japanese bond yields, coupled with expectations that the Bank of Japan could end its negative interest rate policy early next year, is supporting the yen’s strength against the USD.

The Chinese yuan continued its upward trajectory, almost hitting its four-month high against the dollar. The currency could continue to find support in the Chinese government’s efforts to revive the real estate market, enhancing optimism about a potential turnaround in China’s economy.

In addition, Chinese banks have been buying the yuan, and could boost its recovery.