Feb 26 2024: Most Asian currencies saw slight gains on Tuesday as the dollar weakened, offering some relief ahead of a pivotal inflation report expected to shed light on U.S. interest rate movements this week.
However, the increases in regional currencies were modest, with many remaining within a trading range established over the past few months. The dollar also hovered near recent three-month highs.
Japanese Yen Gains Ground Amid Stubborn Inflation, Focus on BOJ Pivot
The Japanese yen emerged as one of the stronger performers of the day, edging up 0.2% from its weakest point in over three months following a consumer price index reading for January that exceeded expectations.
While inflation still showed signs of slowing, the data fueled growing speculation that the Bank of Japan (BOJ) might move to raise interest rates as early as April.
The BOJ is widely anticipated to phase out its yield curve control and negative interest rate policies this year, with persistent inflation potentially accelerating this timeline.
However, deteriorating economic conditions in Japan, particularly with the unexpected recession in the fourth quarter, could potentially delay the BOJ’s plans.
Other Asian Currencies Show Mild Gains Ahead of Economic Data Releases
Elsewhere, broader Asian currencies posted minor gains as investors awaited various regional economic indicators. The Australian dollar inched up 0.1% ahead of a monthly CPI inflation reading scheduled for Wednesday.
The New Zealand dollar slipped 0.2% before a Reserve Bank meeting, where the RBNZ is expected to maintain interest rates while signaling potential future hikes amid persistent inflation.
The Chinese yuan held steady ahead of crucial purchasing managers index (PMI) readings due on Friday, which are expected to offer insights into the region’s largest economy.
The South Korean won and Singapore dollar saw slight increases, while the Indian rupee remained steady but traded above record-low levels.
Dollar Retreats Ahead of PCE Inflation and GDP Data
The dollar index and dollar index futures both dipped by 0.1% each during Asian trading on Tuesday, as the greenback weakened in anticipation of key economic releases.
Investors are awaiting the PCE price index data, the Fed’s preferred inflation metric, due on Thursday, which is expected to influence the central bank’s interest rate decisions.
Before that, a second reading on fourth-quarter U.S. GDP is scheduled for release on Wednesday.
Despite the relative resilience of the U.S. economy and inflation, the Fed has signaled a cautious approach to interest rate adjustments, which could benefit the dollar but pose challenges for Asian currencies.
