© Reuters
Investing.com – Most Asian currencies rallied on Thursday, while the dollar settled at a 15-month low after weaker-than-expected US inflation data spurred bets that the Federal Reserve is close to peaking interest rates.
The US also fell after a weak inflation reading, as the data, along with signs of a cooling labor market, spurred bets that the Fed is likely to soften its hawkish stance in the coming months.
The dollar fell sharply in overnight trade, with a loss of around 0.1% each in the Asian session. Both indexes traded at a 15-month low, after falling 1.2% in the previous session – their worst day so far in 2023.
Dollar weakness saw most Asian currencies rally in late Wednesday, with regional units flat in Thursday morning trade. Asian currencies have been battered by the sharp increase in US interest rates over the past year, and have rebounded sharply in hopes of ending the cycle of Fed rate hikes.
The stock, one of the worst performers in Asia so far this year, traded near a two-month high against the dollar, while the interest rate-sensitive index rose 0.1% after keeping interest rates steady for the fourth consecutive month. Both currencies rose more than 1% each in overnight trading.
Gains in commodity prices saw a jump of 0.4%.
Chinese Yuan lags after dismal trade data
It was among the few outliers in Asian currencies for the day, trading flat after overnight gains as data showed trading conditions in the country worsened further in June.
Both contracted significantly more than expected during the month, while the country’s outlook was disappointing. The reading, which followed and in June, highlighted the sluggish economic recovery in the country, even after it lifted anti-COVID restrictions earlier this year.
While easing concerns from the Fed helped the yuan recover sharply from a six-month low hit earlier this month, the currency still faces more headwinds from deteriorating sentiment toward China. Further stimulus measures from Beijing are also expected to undermine the currency further.
US CPI is weakening, but the July rally is still in the works
While the June reading of inflation (CPI) indicated an easing of overall inflation in the country, which ignores volatile food and fuel prices, it remained relatively flat.
This led investors to price in at least the Fed’s price in at its late July meeting, where several Fed officials also warned that rates would need to rise further in order to rein in sticky inflation.
But analysts said the central bank is still close to peaking rates in this strolling cycle, and that there is likely to be a pause in further increases in the coming months.
