Asia FX muted, dollar sinks ahead of PCE inflation data

By Ambar Warrick

Investing.com -- Most Asian currencies moved little on Friday as the dollar weakened on signs of a softening labor market, with focus now turning squarely to a reading on the Federal Reserve’s preferred inflation gauge later in the day.

Still, most Asian currencies were trading higher for the first quarter of 2023, as fears of a banking crisis decimated the dollar and spurred bets that the Federal Reserve will taper its hawkish stance. The greenback was down 1% over the past three months.

Regional currencies took few cues from mixed Chinese business activity data, which showed that while service sector activity grew more than expected, growth in the manufacturing sector slowed from the prior month.

Overall business activity grew at its fastest pace in over a decade, but the reading still points to an uneven recovery in the Chinese economy. The yuan trimmed a bulk of its intraday gains after the data, and was trading 0.1% higher.

Other Asian currencies rose slightly on Friday, with the South Korean won up 0.2%, while the Malaysian ringgit added 0.3%. The won advanced even as data showed that South Korean industrial production continued to shrink through February.

The Japanese yen was flat as data showed inflation in Tokyo eased slightly less than expected in March. The reading usually heralds a similar trend in nationwide inflation, which is due later in April.

Other data showed that Japanese industrial production and retail sales rose sharply in February, although this also coincided with a rise in unemployment.

The dollar was nursing steep losses from the overnight session, and moved little in Asian trade. The dollar index and dollar index futures rose less than 0.1% each, and were close to a one-month low.

Data released overnight showed that U.S. jobless claims rose more than expected in the past week, pointing to some cooling in the labor market. The reading spurred some bets that the Federal Reserve will have limited headroom to keep raising interest rates, especially in the face of a potential banking crisis.

Focus is now on personal consumption expenditures data - the Fed’s preferred inflation gauge - due later in the day. Any sign that inflation eased further in February is likely to further trim expectations of more interest rate hikes, denting the dollar and boosting demand for Asian currencies.