Asian Currencies Weaken Ahead of Fed and BOJ Decisions

Asian currencies slipped on Tuesday as the Japanese yen pulled back from its seven-month high. Markets are positioning for a Bank of Japan rate hike later this week, and expectations for a 25-basis-point increase have kept the currency sensitive to signals on the pace of further tightening.

The US dollar edged toward a two-week peak ahead of the Federal Reserve's policy decision on Wednesday, with markets now seeing a rate increase as almost certain. The CME FedWatch was pricing about a 93% probability of a hike, which would be the first increase in more than three years.

Rising oil prices have added to the pressure, lifting Treasury yields and reinforcing inflation concerns that are complicating the outlook for central banks and weighing on import-dependent currencies. DBS cautioned against chasing the dollar's pre-FOMC gains, noting that markets are already pricing a Fed hiking cycle even as a hold remains a risk.