Asia FX muted before PCE test; yen firms on strong CPI, while yuan hits 2024 peak By Investing.com

Most Asian currencies remained in a tight range on Friday as the dollar held onto recent gains in anticipation of key inflation data that is likely to influence interest rate expectations.

The Japanese yen strengthened, approaching levels seen at the start of the month, as strong inflation data from Tokyo reinforced the Bank of Japan’s hawkish stance.

The Chinese yuan hit its strongest level in 2024, as news of more positive policy measures from Beijing led to a broader recovery in local markets.

Most regional currencies are still set to post gains in August, with the dollar falling to a 13-month low amid growing conviction that the Federal Reserve will cut interest rates in September. But that trade has slowed moderately this week.

Dollar maintains weekly recovery, awaits personal consumption data

The dollar and yen were steady in Asian trading, on track for their first positive week in five. But the dollar remained down 2.6% in August, its worst month since November 2023.

The dollar was supported by continued signs of resilience in the U.S. economy, after data released on Thursday showed the economy grew more than initially estimated in the second quarter.

The data – the Fed’s preferred measure of inflation – is due later Friday and is also expected to show inflation rose slightly in July.

A strong economy and steady inflation give the Fed less impetus to cut interest rates sharply. While traders have maintained their bets on a September rate cut, they are leaning toward a smaller cut of 25 basis points, a report showed.

Japanese yen rises after Tokyo CPI beats expectations

The Japanese yen rose on Friday, with the pair down 0.1% at 144.84 yen. The pair was close to lows hit in early August, during the peak of pro-yen trading.

Inflation rose slightly more than expected in August, official data showed, with core inflation returning to the Bank of Japan’s annual target of 2% amid improving private spending.

The reading reinforced the idea that rising inflation will give the Bank of Japan more room to raise interest rates further this year. The CPI reading also helped markets look past the disappointing data.

Chinese Yuan to Peak in 2024 on Stimulus Hopes, PBOC Support

The Chinese yuan rose on Friday, with the pair hitting its lowest level since late December.

The yuan, along with broader Chinese markets, was supported by news that Beijing plans to refinance $5.4 trillion in mortgages, giving a boost to the property market, which is at the heart of China’s economic slowdown.

But the main support point for the yuan was a series of strong midpoint fixings by the People’s Bank of China, as it moved to protect the Chinese currency from further losses.

Broader Asian currencies moved in a narrow range, as traders awaited U.S. inflation readings.

The Australian dollar rose 0.1% and was close to a one-month high. Data came in weaker than expected for July, slowing after two months of strong growth.

The South Korean won rose 0.1%, while the Singapore dollar remained flat.

The Indian Rupee pair has moved away from the Rs 84 level, but is still close to its record highs recorded earlier in August.