Investing.com — Most Asian currencies strengthened Friday as positive economic data from the U.S. and China helped ease recession concerns, although improved risk appetite put renewed pressure on the Japanese yen.
The dollar found some strength on better-than-expected labor market data, although any big gains in the dollar were suppressed by continued bets on interest rate cuts.
A risk-on rally in equity markets also brought some confidence to regional markets.
Chinese Yuan Strengthens as Inflation Rises
The Chinese yuan strengthened on Friday, with the pair down 0.1% after a stronger-than-expected midpoint fix from the People’s Bank.
The yuan was also supported by data showing that Chinese inflation grew more than expected in July, while inflation fell slightly less than expected.
The data showed that recent interest rate cuts in China have helped boost some consumer spending and prices, although lower interest rates do not bode well for the yuan in the long term.
Traders were also cautious about whether Friday’s data indicated a trend, as despite some strength in July, Chinese disinflation was still a factor.
Japanese yen is under pressure as risk sentiment improves
The Japanese yen held steady on Friday but saw a sharp decline in recent sessions due to some less aggressive signals from the Bank of Japan, and as improving sentiment also sapped the currency’s safe-haven demand.
The pair fell slightly to 147.22 yen, but was trading well above the low of around 141.6 yen earlier this week.
The yen’s reversal came as BOJ officials said they would not raise rates amid market volatility, tempering an hawkish message from the central bank at a meeting in late July.
But despite weakening this week, the yen still enjoyed tremendous gains against the dollar over the past month, especially as the global carry trade began to weaken.
Dollar stable, CPI data expected
The and both remained steady in Asian trading after seeing mild strength in overnight trading.
Better-than-expected data added to expectations that the labor market would not slow as dramatically as last week’s payroll data had suggested.
But despite the positive data, traders largely maintained their expectations for a rate cut in September, although they did trim expectations for a rate cut by 50 basis points, it showed.
Broader Asian currencies advanced as sentiment improved. The rate-sensitive South Korean won fell 0.7%, while the Singapore dollar fell 0.2% in holiday trading.
The Australian dollar pair added 0.1% and extended gains after aggressive signals from the Reserve Bank boosted the currency.
The Indian rupee pair retreated from record highs, albeit narrowly, after the Reserve Bank of India struck a somewhat hawkish tone and also slightly revised its growth forecasts for the current quarter.
