Investing.com — Most Asian currencies were modestly lower on Friday as the dollar stabilized from overnight declines, with focus shifting squarely towards key US inflation data due next week, which is likely to provide further signals on interest rates.
The Chinese yuan fell, as did currencies with trade exposure to China after multiple reports said the United States is preparing more trade tariffs on Beijing.
Regional currencies received little support from the dollar's decline overnight, as more evidence of a slowdown in the labor market reinforced bets that the Federal Reserve (the US central bank) will cut interest rates in September.
But the dollar stabilized in Asian trading, putting pressure on regional currencies as uncertainty ahead of key US inflation data next week kept traders largely biased towards the greenback.
Chinese yuan weakens, US dollar rises against Chinese yuan after tariff reports
The Chinese yuan pair rose 0.1% as several reports stated that US President Joe Biden is considering imposing new sanctions on some Chinese industries, such as electric cars and batteries.
While the economic impact of the tariffs was not clear, such measures could trigger retaliation from China, further straining relations between the world's two largest economies.
Other currencies with trade exposure to China fell on this idea. The Australian dollar pair fell 0.2%, while the Singapore dollar and South Korean won pairs lost 0.1% and 0.3%, respectively.
The Japanese yen remains fragile, and USDJPY is approaching 156
The Japanese yen continued to weaken this week, with the pair recovering the bulk of losses incurred after apparent government intervention in currency markets last week.
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The USD/JPY pair rose 0.2% to 155.73 yen, trading well above the low of 152 yen hit earlier in May. Traders now see 160 yen as the new line in the sand for Japanese government intervention.
Household spending data for March, released earlier Friday, showed some resilience – a trend that could support Japanese inflation expectations.
The dollar stabilizes and heads towards weekly gains ahead of inflation data
The US dollar index rose slightly in Asian trading, recovering some of the losses it incurred overnight. But the dollar is still trading higher by about 0.2% during the week.
The dollar fell on Thursday after data showed a larger-than-expected increase in the week, reinforcing expectations of a slowdown in the US labor market.
This has fueled some expectations that the Fed will start cutting interest rates by September.
But flat inflation has remained a major point of contention for the Fed, with a slew of officials warning this week.
Their comments put the upcoming data, due next week, squarely in focus for further signals on interest rates.
