Asia FX muted as dollar firms before PCE data; yen on intervention watch

Investing.com-- Most Asian currencies kept to a tight range on Friday as the dollar stuck to near two-month highs before key inflation data that is likely to factor into the Federal Reserve’s outlook on interest rates.

Strength in the dollar saw the Japanese yen weaken further past levels that traders had initially expected to attract government intervention. Mixed inflation data from Japan’s capital gave little support to the currency, neither did repeated warnings from the government.

Weak sentiment towards China, ahead of key purchasing managers index data due over the weekend, also kept flows into regional markets limited. The yuan was at its weakest level since October, with few signs that selling pressure on the currency was easing.

Japanese yen weakens further, USDJPY crosses 161

Weakness in the Japanese yen persisted, with the USDJPY pair rising 0.2% on Friday and briefly crossing the 161 level. 

The pair was now well above levels that had attracted intervention by the government in May. While officials kept up their verbal warnings, movement in the USDJPY pair suggested that no actual intervention had taken place so far. 

Consumer price index data from Tokyo also showed little pick up in inflation. While headline inflation rose, underlying inflation remained well below the Bank of Japan’s 2% annual target.

The weak inflation print added to doubts over just how much headroom the BOJ has to tighten monetary policy- a key factor behind the yen’s recent weakness. 

Dollar at 2-mth high, PCE data awaited 

The dollar index and dollar index futures rose 0.2% in Asian trade, and were at their highest levels since late-April. 

Traders remained largely biased towards the greenback ahead of key PCE price index data, which is the Fed’s preferred inflation gauge.

The reading is due later on Friday and is expected to show inflation cooled slightly in May, but remained well above the Fed’s 2% annual target. 

The dollar was little deterred by recent data showing some cooling in the U.S. economy, particularly the labor market. Uncertainty over just when and by how much the Fed will cut rates kept flows to the dollar strong. 

Broader Asian currencies were nursing steep losses through June amid this uncertainty.

The Chinese yuan’s USDCNY pair moved little on Friday and remained at its highest level since November. Focus was now on key Chinese PMI data, which is due over the weekend. 

The Australian dollar’s AUDUSD pair slid 0.3%, as it gave up some gains made on the back of a hotter-than-expected inflation reading this week. 

The South Korean won’s USDKRW pair fell 0.2% after some stronger-than-expected industrial production data. 

The Singapore dollar’s USDSGD pair rose 0.1%. The Indian rupee’s USDINR pair moved little but remained close to recent record highs.