Asian currencies saw broad gains on Monday as the U.S. dollar weakened, driven by disappointing U.S. economic data. The South Korean won led regional advances, ahead of the Bank of Korea's (BoK) upcoming interest rate decision.

Key Highlights

• US Dollar Index (DXY): -0.4% to 106.18 in Asian trading.
• US Dollar Index Futures: -0.4% as of 04:56 GMT.
• Asian currencies gain: Weaker U.S. data eases rate hike fears.
• BoK expected to cut rates: 25 bps cut forecasted to 2.75%.

1. US Dollar Weakens on Soft Economic Data

The dollar declined after economic indicators signaled a slowing U.S. economy:

• U.S. business activity hit a 17-month low, as import tariffs and federal spending cuts dampened growth.
• Consumer sentiment (University of Michigan) fell to 64.7, the weakest in 15 months.

These signs of economic weakness raised expectations of Fed rate cuts, pushing the dollar lower.

2. Asian Currencies Gain as Dollar Retreats

• South Korean won (USD/KRW): -0.6%, leading gains.
• Chinese yuan (USD/CNH): -0.3%.
• Australian dollar (AUD/USD): +0.4%.
• Singapore dollar (USD/SGD): -0.3%.
• Indian rupee (USD/INR): +0.1%.
• Japanese yen (USD/JPY): -0.1%.
• Malaysian ringgit (USD/MYR): -0.4%.

Regional currencies had been under pressure due to Trump's tariff threats and concerns over prolonged high U.S. interest rates. However, recent weak U.S. data provided relief.

3. Bank of Korea Expected to Cut Rates

The Bank of Korea (BoK) will announce its rate decision on Tuesday, with analysts expecting a 25 bps cut from 3.00% to 2.75% to support growth.

South Korea's Economic Challenges

• Q4 2024 GDP: +0.1% growth, signaling stagnation.
• Political instability: The impeachment and arrest of President Yoon Suk-Yeol in December 2024 has hurt confidence.
• BoK's policy shift: In January 2025, the central bank kept rates at 3.00% to support the won amid political uncertainties.

A rate cut could weaken the KRW further, but sluggish economic growth may leave the BoK with little choice.

Market Outlook

• U.S. PCE inflation data (Friday) could impact Fed rate expectations.
• BoK's rate decision (Tuesday) may determine the next move for the won.
• Asian FX strength could continue if the dollar remains weak.

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