Most Asian currencies moved in a flat-to-low range on Thursday, while the dollar strengthened after a strong reading on U.S. consumer inflation dashed hopes that the Federal Reserve would cut interest rates by a large margin.
Weak inflation data from Japan weighed on the yen, pushing the currency back from its strongest level in eight months. But the yen remained relatively strong as hawkish comments from the Bank of Japan continued to flow.
Except for the yen, most regional currencies also suffered sharp losses from last week, as growing fears of a US recession weighed on risk-driven markets.
Dollar firm after core CPI beats expectations, easing rate cut bets
Gold and silver prices rose 0.1% in Asian trading, extending gains made on Wednesday after inflation data came in higher than expected for August.
Although the core reading continues to soften, it suggests that inflation may be more persistent than initially expected, necessitating smaller interest rate cuts by the Fed.
Data on Wednesday showed that bets that the central bank will cut interest rates by just 25 basis points when it meets next week have increased sharply, while bets on a 50 basis point cut have fallen by more than half.
But ahead of next week’s Fed meeting, focus is on inflation data due later Thursday for further cues on inflation.
The prospect of a smaller rate cut bodes well for Asian markets, as such a scenario portends tighter monetary conditions in the US for a longer period.
Japanese yen retreats from 8-month high after weak PPI
The Japanese yen retreated from its strongest levels in eight months, with the pair rising 0.1% to 142.47 yen.
The yen continued to decline overnight after a weaker-than-expected reading for August.
The weaker inflation data has raised some questions about how much room the Bank of Japan has to continue raising interest rates, especially since the bank has indicated it will raise rates higher this year if inflation picks up.
Bank of Japan board member Naoki Tamura said on Thursday the bank needs to raise interest rates to at least 1% to avert inflation risks.
The central bank is set to raise interest rates again, with analysts skeptical about another rate hike after the one in late July. Data due next week should also provide further clues.
Broader Asian currencies moved in a flat-to-low range, amid uncertainty over U.S. interest rates and a lack of domestic cues.
The Australian dollar rose 0.1%, while the South Korean won and Singapore dollar were flat.
The Chinese yuan pair steadied and suffered some losses this week as sentiment towards the country was hurt by weak import data. Reports that US lawmakers are preparing to impose more trade restrictions on Beijing also undermined the yuan.
The Indian Rupee pair remained stable and hovered around the Rs 84 level.