Asia FX drifts lower, dollar weakens as inflation data looms By Investing.com

Investing.com – Most Asian currencies moved in a flat to lower range on Monday as strong US employment data fueled expectations that the Federal Reserve will keep interest rates higher for longer, despite dollar weakness amid uncertainty ahead of key inflation data this week.

It fell 0.1%, staying close to breaching the 7 level as focus also turned to Chinese indices this week. Markets are watching for any further signs of a Chinese economic recovery, after business activity readings for April indicated a slow recovery.

Analysts also expect continued weakness in China and inflation in April, suggesting a slow recovery even as the country eased most anti-COVID restrictions earlier this year.

The interest rate-sensitive index was down 0.2%, also lower. It rose 0.1%, supported by some safe-haven demand. The data also showed that the Japanese grew at a record pace in April, indicating some resilience in Asia’s second-largest economy.

The Fed was among the outliers of the day, rising 0.4% as a private survey showed that remained strong in April.

Most Asian currencies fell sharply after data on Friday showed that the United States blew previous expectations in April. The reading indicates that the labor market has been brisk despite rising interest rates, and is likely to keep US inflation high, which could lead to the Fed keeping interest rates higher for a while longer.

But the markets are very much mindful of the possibility that US interest rates may have peaked, with the indication being a 90% chance that the Fed will hold rates in June.

The dollar slipped on that notion, with the greenback down about 0.1% on Monday. Both tools were also close to their weakest levels in a year.

The focus this week is squarely on US inflation data, due for release on Wednesday. The reading is expected to show that while inflation eased slightly in April, it was still well above the Fed’s annual target range of 2%.

The markets are also waiting for more signs of a brewing US banking crisis, due later today.

Fears of a banking crisis, which in turn could trigger a recession this year, weighed heavily on the greenback in recent sessions as traders sought traditional safe havens such as the JPY and JPY.

Asian currencies have also been hit by these concerns, given their high exposure to risk.