On Tuesday, a modest uptick was observed in several Asian currencies, as they found a degree of relief in the slight retreat of the dollar. This occurred just ahead of a significant inflation report, anticipated to provide additional insights into the trajectory of U.S. interest rates for the week.
Despite these movements, the gains in regional currencies were tempered, as many of them stayed firmly within a trading range established in the past two months. The U.S. dollar also lingered near a recent three-month peak.
Japanese yen firms as sticky inflation puts BOJ pivot in focus
Among the standout performers of the day, the Japanese yen saw a 0.2% uptick from its lowest point in over three months following a slightly higher-than-expected consumer price index inflation reading for January.
While the inflation data still indicated a pullback, it contributed to the growing anticipation that the Bank of Japan might consider raising interest rates as early as April. Speculations abound that the BOJ is poised to conclude its yield curve control and negative interest rate policies this year, potentially accelerated by persistent inflationary pressures.
However, the economic downturn in Japan, particularly its unexpected slip into recession in the fourth quarter, could potentially throw a wrench into the BOJ’s plans, causing delays.
In broader terms, other Asian currencies experienced mild gains for the day, with various regional economic indicators on the horizon. The Australian dollar, for instance, saw a 0.1% increase ahead of the upcoming monthly CPI inflation reading scheduled for Wednesday.
Conversely, the New Zealand dollar witnessed a 0.2% decline in anticipation of a Reserve Bank meeting where it is widely expected to maintain current interest rates while hinting at potential future hikes amid persistent inflation.
The Chinese yuan remained stable before a series of crucial purchasing managers index (PMI) readings scheduled for Friday, which are anticipated to provide further insights into the dynamics of Asia’s largest economy.
Meanwhile, the South Korean won and Singapore dollar saw slight increases, and the Indian rupee held steady, trading well above its record-low levels.
Dollar creeps lower with PCE inflation, GDP in focus
Both the dollar index and dollar index futures experienced a 0.1% decline each during Tuesday’s Asian trading session, as the greenback relinquished some ground in anticipation of pivotal economic data.
Investors are eagerly awaiting the release of the Personal Consumption Expenditures (PCE) price index data on Thursday, considered the Federal Reserve’s preferred measure of inflation. This data is expected to play a crucial role in shaping the central bank’s decisions on interest rates. Additionally, a second reading on fourth-quarter U.S. GDP is scheduled for Wednesday.
The Federal Reserve, acknowledging the relative resilience in the U.S. economy and the persistent inflationary pressures, has signaled a cautious approach to initiating interest rate cuts early in the year. While this stance is favorable for the dollar, it presents challenges for Asian currencies.
