Despite some market optimism earlier in December, the dollar found limited support amid growing uncertainty over the economic impact of the longest U.S. government shutdown in history, which ended on Wednesday.
Weak economic data out of China dampened sentiment, as Asia’s largest economy entered the fourth quarter on a subdued note. The yuan remained largely flat. Meanwhile, the South Korean won stood out, recovering sharply from its weakest level in nearly 16 years after the government announced measures to support the rapidly weakening currency.
December rate cut bets fade, dollar remains muted
Markets this week quickly scaled back expectations for a Federal Reserve rate cut in December, reflecting heightened uncertainty over the prolonged government shutdown’s effect on the U.S. economy. Concerns intensified on Thursday when White House officials indicated that inflation and employment data for October might not be released due to the shutdown. This leaves the Fed potentially “flying blind” into its December meeting, increasing the likelihood that the central bank will keep rates unchanged amid economic uncertainty.
The dollar retreated on Thursday and traded slightly lower on Friday. The dollar index and dollar index futures hovered around the low-99 range, ending the week down roughly 0.4%.
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The South Korean won’s USD/KRW pair dropped 0.8% on Friday following reports that the government planned measures to support the weakening currency.
Bloomberg reported that Seoul is in discussions with major market participants, including the national pension fund and the Bank of Korea, to take coordinated action to stabilize the won.
The move comes after capital outflows—particularly from equities—and rising uncertainty over the East Asian economy contributed to steep losses in the won this week. The USD/KRW pair approached its highest level in 16 years on Thursday.
Chinese yuan flat after weak industrial data
The Chinese yuan’s USD/CNY pair remained around 7.0949, showing little reaction to mostly disappointing economic data for October.
Industrial production rose less than expected, while fixed asset investment contracted significantly, reflecting continued hesitation among Chinese businesses to spend on capital projects. Retail sales offered a modest positive surprise, edging above expectations, though growth still slowed compared to the previous month.
These indicators underscore ongoing weakness in China’s economy, which is grappling with high U.S. trade tariffs and persistent disinflation. Beijing has pledged additional stimulus measures to support growth in the coming quarters.
Broader Asian currencies
Among other Asian currencies, the Japanese yen’s USD/JPY pair slipped slightly after tumbling from the 155 level on Thursday. Traders have been closely monitoring this level, given that it has previously triggered currency market intervention by the Japanese government.
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The Australian dollar stood out, with the AUD/USD pair rising 0.2%. The currency extended gains from earlier this week after stronger-than-expected labor market data reduced expectations for additional interest rate cuts by the Reserve Bank of Australia.
The Singapore dollar’s USD/SGD pair edged lower, while the Indian rupee’s USD/INR pair declined 0.1%, amid reports of currency market intervention by the Reserve Bank of India.
The Taiwan dollar’s USD/TWD pair remained largely unchanged.
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