Investing.com — Most Asian currencies rose slightly on Wednesday, retracing some of their gains against the weaker dollar, as markets awaited more signals on interest rates from key US inflation data due later in the day.
Traders also became more confident that the Federal Reserve will not raise interest rates further in 2024, following comments from Chairman Jerome Powell on Tuesday. This idea sparked some weakness in the dollar, although April factory inflation data surprised to the upside.
However, most regional currencies have suffered sharp losses against the dollar in recent months, with traders largely pricing in most expectations of interest rate cuts in 2024.
Dollar steady as CPI data approaches
Both the greenback and the US dollar fell slightly in Asian trading on Wednesday, extending overnight losses even as the data surprised to the upside.
Comments from the Fed's Powell, specifically that monetary policy is 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 losing confidence that inflation was falling quickly, and that price pressures could take longer to reach the bank's annual target of 2%.
His comments, combined with the strong Producer Price Index reading, put markets on alert for a potentially hotter-than-expected reading for April, due later in the day. Any signs of steady inflation are likely to reduce expectations of interest rate cuts in 2024, presenting a strong outlook for the dollar and further headwinds for Asian markets.
Asian currency markets are seeing slight gains
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Dollar weakness overnight gave some strength to Asian currencies on Wednesday, despite a series of weak domestic factors.
The Chinese yuan pair fell by 0.1% even as the United States imposed strict tariffs on key Chinese sectors such as electric car batteries and semiconductors.
This move is expected to provoke retaliatory reactions from Beijing and may reignite a heated trade war between the world's two largest economies, which represents a weak outlook for China.
The Japanese yen pair fell slightly but remained well above the 156 yen level, as markets remained alert about any further currency market intervention by the government. The government was last seen intervening at the 160 yen level, which most traders said was the new line in the sand.
The focus this week is also on Japanese first quarter data due on Thursday.
The Australian dollar rose 0.4%, even with a weaker-than-expected first quarter reading.
The Indian rupee pair moved little after falling from near-record levels on Tuesday, while the Singapore dollar pair fell 0.1%.