Mar 12 2024: Most Asian currencies showed limited movement on Tuesday, while the dollar stabilized as investors awaited crucial U.S. inflation data for clues about potential changes in interest rates by the Federal Reserve.
The Japanese yen, in particular, performed poorly compared to its regional counterparts, sharply retreating from its over one-month high following remarks from top Bank of Japan officials, which tempered expectations of an imminent rate hike from the central bank.
Yen Weakens as BOJ’s Ueda Cautions on Economic Optimism
The yen depreciated approximately 0.3% against the dollar, stepping back from its recent high achieved on Monday.
This reversal in the currency’s trajectory primarily stemmed from comments made by BOJ Governor Kazuo Ueda, who acknowledged the recovery in the Japanese economy but also highlighted signs of weakness, particularly in consumption. Ueda’s less optimistic tone regarding the economy diverged from market expectations.
Ueda’s remarks preceded a BOJ meeting, where the central bank is widely anticipated to signal or implement an end to its yield curve control and negative interest rate regime.
Buoyed by stronger-than-expected producer inflation data and an upward revision in fourth-quarter GDP, market sentiment leaned towards the belief that the BOJ might adjust its policy stance in response to the economy’s resilience.
Meanwhile, broader movements in Asian currencies remained subdued. The Australian dollar stabilized near two-month highs, while the Indian rupee hovered close to a six-month peak.
Conversely, the Singapore dollar edged lower by about 0.1%, while the South Korean won exhibited minimal changes.
The Chinese yuan advanced by 0.1% following a stronger-than-anticipated midpoint fix by the People’s Bank, although concerns persisted about the currency’s outlook amid a sluggish economic recovery.
Dollar Finds Stability After Recent Declines Ahead of CPI Data Release
The dollar index and dollar index futures experienced slight declines in Asian trading on Tuesday but showed signs of stabilization after significant losses the previous week.
Investor attention shifted to the imminent release of the U.S. Consumer Price Index (CPI) data, which is expected to shape the Federal Reserve’s interest rate trajectory for 2024.
Projections suggest that the CPI data for February will reveal persistent inflation, remaining well above the Fed’s 2% annual target, potentially prompting a hawkish stance from the central bank.
The upcoming CPI reading will be closely scrutinized, particularly after several Fed officials, notably Chair Jerome Powell, emphasized that the central bank’s decisions on interest rate adjustments would be closely tied to inflation trends.
Nevertheless, market sentiment continues to lean towards a 25 basis point rate cut in June, according to the CME Fedwatch tool.