June 28 2024: Most Asian currencies remained in a narrow range on Friday as the dollar held near two-month highs ahead of crucial inflation data that could influence the Federal Reserve’s stance on interest rates.
Dollar Strength and Yen Weakness
The dollar’s strength contributed to further weakening of the Japanese yen, which fell beyond levels previously expected to trigger government intervention. Mixed inflation data from Tokyo provided little support, and repeated government warnings did not affect the currency significantly.
Weak Sentiment Toward China
Investor sentiment towards China remained weak, with upcoming purchasing managers index data over the weekend contributing to the cautious mood. The yuan hit its lowest level since October, with no signs of easing selling pressure.
Japanese Yen Weakens Further
The yen’s weakness persisted, with the USDJPY pair rising 0.2% on Friday and briefly crossing the 161 level. This level was well above the intervention point seen in May. Despite officials’ verbal warnings, market movements suggested no actual intervention had occurred.
Tokyo’s consumer price index data showed a modest increase in headline inflation, but underlying inflation stayed well below the Bank of Japan’s 2% annual target. This weak inflation print further cast doubt on the BOJ’s capacity to tighten monetary policy, contributing to the yen’s recent decline.
Dollar at Two-Month High, Awaiting PCE Data
The dollar index and dollar index futures rose 0.2% in Asian trade, reaching their highest levels since late April. Traders largely favored the greenback ahead of the key PCE price index data, the Fed’s preferred inflation measure, expected later on Friday.
The PCE reading is anticipated to show a slight cooling in May’s inflation but remaining above the Fed’s 2% annual target. Despite recent data indicating some economic cooling, particularly in the labor market, uncertainty about the timing and extent of Fed rate cuts continued to support the dollar.
Broader Asian Currency Trends
Broadly, Asian currencies have faced significant losses in June amid ongoing uncertainty. The Chinese yuan’s USDCNY pair remained steady but at its highest level since November, with attention now on the forthcoming Chinese PMI data.
The Australian dollar’s AUDUSD pair fell 0.3%, relinquishing some gains from a hotter-than-expected inflation reading earlier in the week.
The South Korean won’s USDKRW pair dropped 0.2% following stronger-than-expected industrial production data. The Singapore dollar’s USDSGD pair rose 0.1%. The Indian rupee’s USDINR pair remained mostly unchanged but close to recent record highs.