Most Asian currencies rose on Thursday as the dollar weakened after comments from Federal Reserve Chairman Jerome Powell raised optimism about interest rate cuts, putting upcoming inflation data in focus.
Regional currencies regained some ground against the dollar as traders largely stuck to their bets on a Federal Reserve rate cut in September. Thursday’s consumer price inflation report is set to provide further clues on that front.
But weak economic data has seen the Japanese yen continue to lag its peers, with the currency remaining near its weakest levels in 38 years.
Dollar falls as focus turns to CPI data
The dollar and the euro fell about 0.1% in Asian trading, extending overnight losses after Powell reiterated his expectations for a soft landing for the U.S. economy.
One of the main pressure points on the dollar was Powell’s statement that the Fed does not need to see inflation fall below its 2% target to start cutting interest rates, but that the bank only needs enough confidence that inflation is coming down.
This puts upcoming data in focus, as any signs of easing inflation are likely to increase bets on interest rate cuts.
Traders showed a 72.5% chance that the Fed will cut interest rates by 25 basis points in September.
Japanese Yen Weak, USD/JPY Holds Above 161
The Japanese yen continued to lag its peers, showing little improvement even as the dollar weakened and expectations for US interest rates improved. The pair remained hovering above 161 yen, remaining close to levels last seen in 1986.
Weak core machinery orders data for May pointed to continued weakness in the Japanese economy, reinforcing the notion that the Bank of Japan will have only limited room to raise interest rates further.
However, the threat of potential government intervention in currency markets has kept the yen’s decline relatively sporadic.
Broader Asian currencies mostly rose on the prospect of an eventual U.S. interest rate cut.
The Australian dollar rose 0.2%, even as data from the Australian Bureau of Statistics showed inflation expectations in Australia slowed slightly.
The Chinese yuan pair fell 0.1%, as the Chinese currency saw some relief after disappointing inflation data on Wednesday.
The South Korean won fell 0.3% after the Bank of Korea held its 12th consecutive meeting. But some policymakers raised the possibility of a rate cut in the next three months.
The Singapore dollar pair fell by 0.1%, while the Indian rupee pair moved slightly.