Asia FX muted, dollar at 5-mth high as Powell touts higher-for-longer rates

Investing.com-- Most Asian currencies kept to a tight range on Wednesday, while the dollar steadied near five-month peaks after strong U.S. economic data and warnings from the Federal Reserve saw traders largely price out bets on early interest rate cuts.

Most regional currencies were nursing steep losses in recent sessions following hotter-than-expected readings on U.S. inflation and retail sales, which showed that inflation remained sticky in recent months- a scenario that gives the Fed little impetus to begin cutting interest rates.

This notion was furthered by Chair Jerome Powell on Wednesday, which underpinned the dollar and Treasury yields and pressured Asian markets.

Dollar strong as Powell says little confidence to cut rates 

The dollar index and dollar index futures steadied near their highest levels since early-November, after seeing a strong rally over the past week.

Traders remained biased towards the dollar after Powell said on Tuesday that recent signs of sticky inflation gave the Fed less confidence to begin cutting interest rates. 

Powell’s comments saw traders further scale back expectations for a rate cut in June, with the CME Fedwatch tool now showing a 79.2% chance the central bank will keep interest rates steady. The tool also showed traders pricing in a small chance of a 25 basis point hike. 

More Fed officials are set to speak in the coming days, and are likely to echo Powell’s rhetoric, given that the central bank has largely signaled that any interest rate cuts will be guided by inflation. 

Traders were also largely biased towards the dollar as worsening geopolitical tensions in the Middle East drove safe haven demand. 

Japanese yen weak with USDJPY at 34-year high, intervention eyed

Among Asian currencies, weakness in the Japanese yen persisted on Wednesday, with the USDJPY pair remaining at 34-year highs, well above the 154 level.

Data from Japan showed exports grew more than expected in March, aided chiefly by a weaker yen.

But persistent weakness in the yen put traders on guard for any potential intervention measures by the Japanese government, especially as several officials warned in recent weeks that they would not rule out any measures to stem yen weakness. 

Other Asian currencies were either muted or recovered mildly from earlier losses. The Australian dollar’s AUDUSD pair rose 0.3% after tumbling to a five-month low in the prior session.

The Chinese yuan’s USDCNY pair was flat as markets digested mixed economic data from Tuesday, while the People’s Bank kept its midpoint fix steady.

The Singapore dollar’s USDSGD pair fell 0.1% even as data showed the island state’s key non-oil exports slumped 20% in March.

The South Korean won’s USDKRW pair fell 0.3% after racing to a five-month high on Tuesday.