Asia FX slips, dollar near 1-mth high as U.S. inflation looms

By Ambar Warrick

Investing.com -- Most Asian currencies weakened on Monday, while the dollar came close to an over one-month high as markets turned cautious ahead of hotly anticipated U.S. inflation data this week, while regional economic readings also came into focus.

Risk-heavy Southeast Asian currencies were the worst performers for the day, with the Malaysian ringgit and the Philippine peso losing nearly 0.8% each.

The Singapore dollar fell 0.2% as data showed the country’s economy grew less than expected in the fourth quarter of 2022. But the Monetary Authority still maintained its growth forecast for 2023, citing hopes for an eventual economic recovery in China, the country’s largest trading partner.

The Japanese yen sank 0.6% as traders awaited more details on who the next Bank of Japan Governor will be. The government is reportedly expected to make an announcement on the matter later this month.

The yen has weakened in recent weeks amid speculation that Governor Haruhiko Kuroda’s will mirror his ultra-loose economic policy, which spells more weakness for the Japanese currency.

China’s yuan fell 0.3% as weaker-than-expected inflation readings for January pushed up expectations of another interest rate cut by the People’s Bank, as it struggles to shore up economic growth.

The country has seen a somewhat mixed recovery in business activity after it relaxed most anti-COVID measures earlier this year. But a recovery in China bodes well for broader Asian economies, given the country's position as a major trading hub.

Broader Asian currencies remained under pressure in anticipation of the U.S. inflation reading on Tuesday. While inflation is widely expected to have fallen in January from the prior month, it is still forecast to remain at relatively high levels, which could invite more monetary tightening by the Federal Reserve.

The dollar strengthened against a basket of currencies, and was trading close to highs last hit in early-January. Both the dollar index and dollar index futures rose 0.1% on Monday.

Fears of more interest rate hikes by the Fed have largely dictated the performance of Asian currencies in recent weeks, with traders now watching for more U.S. economic cues to gauge the path of monetary policy. Concerns over a looming U.S. recession have also dented Asian currencies, as short-term Treasury yields saw a boost.

The Indian rupee fell 0.2% ahead of consumer inflation data for January which is widely expected to show a sustained decline in January. But the Reserve Bank recently signaled that it will keep tightening policy to bring inflation in line with its 4% annual target.