Most Asian currencies were little moved on Tuesday as the dollar held steady ahead of key inflation data due later in the day, while the Japanese yen weakened further ahead of more signals on the economy.
Sentiment towards regional currencies remained subdued after a major move towards risk aversion in markets last week, while weaker trades with the yen also weighed on markets.
Uncertainty over further economic signals from China also weighed on markets, amid ongoing concerns about a slowdown in the region’s largest economy.
Dollar steady as CPI data comes out
Gold was little moved in Asian trading, continuing its weak performance overnight as anticipation of inflation data deterred big bets.
Data due out on Wednesday is expected to show inflation slowed slightly in July, a scenario that gives the Federal Reserve more room to start cutting interest rates.
Lower interest rates bode ill for the dollar. A weaker inflation reading could also reignite concerns about a U.S. recession, prompting the Federal Reserve to cut interest rates even more deeply.
Traders are divided over whether the Fed will cut interest rates by 25 or 50 basis points in September, with July’s inflation reading likely to be a factor in the decision.
Besides inflation data, there are other data releases due this week.
Japanese Yen Continues to Weaken, GDP Data Awaited
The Japanese yen continued to weaken following some softer comments from the Bank of Japan last week, with the pair up 0.2% to 147.48 yen.
The pair had fallen to a low of 141 yen last week amid increased safe-haven demand and a decline in the carry trade, but traders questioned how much room the Bank of Japan has to raise interest rates again this year.
Data showed that industrial inflation in Japan rose as expected in July.
Second-quarter data, due out on Thursday, is set to influence Japan’s interest rate outlook. Any signs of economic resilience, especially as wages rise, could give the Bank of Japan more impetus to raise interest rates — a scenario that bodes well for the yen.
Asian currencies were weak, with the Chinese yuan falling slightly, with the pair up 0.1%, with data due later this week.
The Australian dollar was among the few currencies to post gains, with the pair up 0.2%. Westpac Bank data showed a slight improvement in August.
The South Korean won rose 0.1%, while the Singapore dollar fell slightly.
The Indian rupee remained close to record highs after showing a sharp decline in inflation in July on Monday.
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