Investing.com — Most Asian currencies rose slightly on Wednesday, regaining some ground against a weaker dollar as markets waited for more cues on interest rates from key U.S. inflation data due later in the day.
Traders also grew more confident that the Federal Reserve will not raise interest rates further in 2024, following comments from Chairman Jerome Powell on Tuesday. This thinking led to some weakness in the dollar, even as factory inflation data for April surprised on the upside.
Still, most regional currencies posted steep losses against the dollar in recent months as traders largely priced in expectations of rate cuts in 2024.
Dollar steady as CPI data approaches
The and both fell slightly in Asian trading on Wednesday, extending losses overnight, even as the data surprised on the upside.
Comments from the Fed’s Powell, particularly that monetary policy was currently tight enough to eventually reduce inflation, were a major driver of the dollar’s decline.
But Powell also warned that the central bank was beginning to lose confidence that inflation was easing rapidly, and that it could take longer for price pressures to reach the bank’s 2% annual target.
His comments, plus the strong PPI reading, left markets wary of a potentially warmer-than-expected reading for April due later in the day. Any signs of persistent inflation are likely to further reduce expectations for rate cuts in 2024, creating a bright outlook for the dollar and more headwinds for Asian markets.
Asia FX posts mild gains
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The dollar’s overnight weakness provided some strength to the Asian currency on Wednesday despite a series of weak domestic factors.
The Chinese yuan pair fell 0.1% even as the US imposed tough tariffs on key Chinese sectors such as electric vehicle batteries and semiconductors.
The move is expected to trigger retaliation from Beijing and could reignite a heated trade war between the world’s two largest economies, leaving a weak outlook for China.
The Japanese yen pair fell slightly but remained well above the 156 yen level as markets remained wary of any further government intervention in the foreign exchange market. The government last intervened around 160 yen, which many traders said was the new line in the sand.
The focus this week is also on the Japanese first quarter figures, which will be released on Thursday.
The Australian dollar pair rose 0.4%, despite being weaker than expected for the first quarter.
The Indian rupee pair moved little after hitting near-record highs on Tuesday, while the Singapore dollar pair fell 0.1%.
