Investing.com — Most Asian currencies rose on Thursday after some weak U.S. consumer inflation readings pushed the dollar to a one-month low and saw traders increase their bets on a September interest rate cut.
But gains in some regional units were held back by a combination of weak economic data and trade tensions, especially in Japan, China and Australia.
The dollar is at its lowest level in more than a month as consumer price index data raised hopes for an interest rate cut
The index fell 0.2% in Asian trading, extending its sharp losses overnight after inflation on a monthly basis, and a lower-than-expected reading for the month of April.
The readings, which were also followed by lower-than-expected data, raised hopes that inflation will cool further in the coming months, giving the Fed more confidence to start cutting interest rates.
This has increased traders' expectations of a 25 basis point cut in September, the probability of which has risen to nearly 54% from 49% last week, according to .
However, the CPI reading remained well above the Fed's annual target of 2%, while a series of Fed officials also warned over the past week that the central bank will need more convincing that inflation is falling.
The Japanese yen is recovering, but weak GDP is stifling the recovery
The Japanese yen pair, which is inversely linked to the strength of the currency, fell 0.6 to about 154 yen on Thursday, continuing its declines overnight as the dollar weakened.
But the pair is still well above levels reached earlier in May, when the government was seen intervening in currency markets.
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The yen's recovery stalled after GDP data showed that Japan's economy contracted much more than expected in the first quarter, with consumer spending stalling.
This raised doubts about the extent of progress the Bank of Japan has to continue raising interest rates.
Other major Asian currencies were also held back by special factors.
Chinese Yuan, Australian Dollar lagging
The Chinese yuan pair fell only slightly, as sentiment towards China was affected by Washington imposing stricter trade tariffs on key industries in China, such as electric cars, pharmaceuticals and solar technology. Beijing threatened retaliation for the move.
Chinese data scheduled for release on Friday.
The Australian dollar pair moved slightly with an unexpected increase in expectations of a cold labor market, which in turn gives the Reserve Bank less momentum to raise interest rates further. Concerns about China also weighed on the Australian dollar, which has significant trade exposure to the country.
Other Asian currencies advanced on the back of a weak dollar. The South Korean won pair fell by 0.4%, while the Singapore dollar pair fell by 0.1%.