Investing.com – Most Asian currencies edged higher and weakened against the dollar on Wednesday, recouping some losses as markets awaited more clues on interest rates from key U.S. inflation data due later in the day.
Traders are also more confident that the Federal Reserve will raise interest rates further in 2024, following comments from Chairman Jerome Powell on Tuesday. The idea sparked some weakness in the dollar, despite a surprise rise in April factory inflation data.
Still, most regional currencies have fallen sharply against the dollar in recent months as traders have largely priced in most expectations of a 2024 rate cut.
Dollar holds steady as CPI data approaches
Pounds and pounds both edged lower in Asian trading on Wednesday, extending overnight losses despite unexpectedly positive data.
Fed Powell’s comments, especially that monetary policy is tightening enough to eventually reduce inflation, are the key drivers of the dollar’s decline.
But Powell also warned that the central bank is losing confidence in a rapid slowdown in inflation and that price pressures may take longer to reach the central bank’s 2% annual target.
His comments, coupled with strong PPI data, left the market wary of higher-than-expected April data released later in the day. Any signs of sticky inflation could further undermine expectations for a rate cut in 2024, providing a strong outlook for the dollar and more headwinds for Asian markets.
Asian FX edge higher
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Overnight dollar weakness provided some strength to Asian currencies on Wednesday, despite a host of weakening domestic factors.
The yuan fell 0.1% despite tough U.S. tariffs on key Chinese industries such as electric vehicle batteries and semiconductors.
The move is expected to draw retaliation from Beijing and could reignite a bitter trade war between the world’s two largest economies, darkening China’s prospects.
The yen edged lower but remained well above the 156 yen level as markets remained wary of further government intervention in currency markets. The last government intervention was around 160 yen, which most traders said was the new floor.
Focus this week is also on Japan’s first-quarter data due on Thursday.
The Australian dollar rose 0.4% against the greenback despite weaker-than-expected first-quarter data.
The Indian rupee was little changed after falling from near record highs on Tuesday, while the Singapore dollar fell 0.1%.
