Asia FX gains some ground as dollar inches lower ahead of CPI data Most Asian currencies rose slightly on Wednesday, retaking some ground against a weaker dollar as markets awaited more cues on interest rates from key U.S. inflation data due later in the day. 

Traders also grew more confident that the Federal Reserve will not hike interest rates further in 2024, following comments from Chair Jerome Powell on Tuesday. This notion sparked some weakness in the dollar, even as factory inflation data for April surprised to the upside. 

Still, most regional currencies were nursing steep losses against the dollar in recent months, as traders largely priced out most expectations of interest rate cuts in 2024. 

Dollar steady as CPI data approaches 

The dollar index and dollar index futures both fell slightly in Asian trade on Wednesday, extending overnight losses even as producer price index data surprised to the upside.

Comments from the Fed’s Powell, specifically that monetary policy was currently tight enough to eventually bring down inflation, was a key driver of the dollar’s decline. 

But Powell also warned that the central bank was losing confidence that inflation was easing quickly, and that price pressures could take longer to reach the bank’s 2% annual target.

His comments, plus the strong PPI reading, put markets on guard over a potentially hotter-than-expected consumer price index reading for April, due later in the day. Any signs of sticky inflation are likely to further diminish expectations of rate cuts in 2024, presenting a strong outlook for the dollar and more headwinds for Asian markets. 

Asia FX clocks mild gains

Overnight weakness in the dollar afforded some strength to Asian currencies on Wednesday, despite a string of weak domestic factors.

The Chinese yuan’s USDCNY pair fell 0.1% even as the U.S. imposed strict tariffs against key Chinese sectors such as electric vehicle batteries and semiconductors.

The move is expected to attract retaliation by Beijing and could reignite a heated trade war between the world’s two biggest economies, presenting a weak outlook for China. 

The Japanese yen’s USDJPY pair fell slightly but remained well above the 156 yen level, as markets remained on guard over any more currency market intervention by the government. The government was last seen intervening around 160 yen, which a bulk of traders said was the new line in the sand. 

Focus this week is also on first-quarter Japanese gross domestic product data, due on Thursday. 

The Australian dollar’s AUDUSD pair rose 0.4%, even as wage growth data for the first quarter read weaker than expected.

The Indian rupee’s USDINR pair moved little after falling from near record highs on Tuesday, while the Singapore dollar’s USDSGD pair fell 0.1%. 

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