July 11 2024: Most Asian currencies rose on Thursday as the dollar lost ground following comments from Federal Reserve Chair Jerome Powell, which sparked optimism over potential interest rate cuts. This puts upcoming inflation data in the spotlight.
Regional currencies gained some ground against the dollar as traders largely maintained their bets on a September interest rate cut by the Fed. Thursday’s consumer price index (CPI) inflation report is expected to provide further insights.
However, weak economic data caused the Japanese yen to continue lagging behind its peers, with the currency remaining close to its weakest level in 38 years.
Dollar Retreats with CPI Data in Focus
The dollar index and dollar index futures both fell about 0.1% in Asian trade, extending overnight losses after Powell reiterated his outlook for a soft landing for the U.S. economy.
A key pressure point on the dollar was Powell’s statement that the Fed did not need to see inflation fall below its 2% target to begin cutting rates, only that the bank needed enough confidence that inflation was easing.
This puts upcoming CPI data in the spotlight, with any signs of easing inflation likely to increase bets on a rate cut.
The CME Fedwatch tool showed traders maintaining a 72.5% chance of a 25 basis point rate cut in September.
Japanese Yen Weak, USDJPY Remains Above 161
The Japanese yen continued to lag its peers, seeing little relief even as the dollar retreated and the outlook on U.S. interest rates improved. The USDJPY pair hovered well above 161 yen, close to levels last seen in 1986. Weak core machinery orders data for May signaled persistent weakness in the Japanese economy, furthering the notion that the Bank of Japan will have limited room to hike interest rates further.
The threat of potential government intervention in currency markets kept the yen’s decline relatively staggered.
Broader Asian Currencies Mostly Firm
Broader Asian currencies mostly firmed on the prospect of an eventual reduction in U.S. interest rates.
The Australian dollar’s AUDUSD pair rose 0.2%, even as data from the Melbourne Institute showed that expectations for Australian inflation had cooled slightly.
The Chinese yuan’s USDCNY pair fell 0.1%, with the Chinese currency seeing some relief after underwhelming inflation data on Wednesday.
The South Korean won’s USDKRW pair fell 0.3% after the Bank of Korea left interest rates unchanged for a 12th consecutive meeting. However, some policymakers raised the prospect of an interest rate cut within the next three months.
The Singapore dollar’s USDSGD pair fell 0.1%, while the Indian rupee’s USDINR pair showed little movement.
