The dollar index and dollar index futures dropped marginally in Asian trade, after soaring nearly 0.8% in the prior session

Most Asian currencies nursed sharp losses on Wednesday, while the dollar stabilised after a sharp overnight rebound as anticipation of more cues on the Federal Reserve saw markets question expectations for early interest rate cuts.

Sentiment towards Asia also remained fragile after weak economic data from China and a devastating earthquake in Japan.

The Chinese yuan dropped 0.1%, with further losses limited by a stronger-than-expected midpoint fix from the People’s Bank of China. The yuan saw renewed weakness this week after dismal PMI readings for December.

The Japanese yen was steady, with local markets shut for a week-long holiday.

The dollar index and dollar index futures dropped marginally in Asian trade, after soaring nearly 0.8% in the previous session. The greenback was now trading comfortably above a more than five-month low reached towards the end of 2023.

Strength in the dollar came before the minutes of the Federal Reserve’s December meeting, which were due later on Wednesday. Analysts cautioned that the minutes may not be as dovish as markets are expecting- a scenario that is likely to dent risk sentiment.

While the Fed hinted in December that it will begin cutting rates in 2024, it gave scant cues on the timing of the move. Fed officials also cautioned after the meeting that bets on early rate cuts were unfounded, given that inflation and the labour market were still running relatively hot.

Wider Asian currencies traded sideways, cooling from a rally in December as risk appetite soured. The Australian dollar was flat after racing to a more-than five-month high in late-December, while South Korea’s won gained 0.2% after dropping sharply in the earlier session.

Most regional currencies were also nursing sharp losses from Tuesday, after the dollar’s rebound.