Asia FX muted as dollar steadies before CPI data; Yen retreats

Investing.com-- Most Asian currencies moved little on Tuesday, while the dollar steadied as markets awaited key U.S. inflation data for more cues on when the Federal Reserve could begin cutting interest rates. 

The Japanese yen was the worst performer among its regional peers, retreating sharply from an over one-month high after comments from top Bank of Japan officials somewhat cooled bets on an immediate rate hike from the central bank.

Yen sinks as BOJ’s Ueda tempers optimism over economy

The yen weakened about 0.3% against the dollar, retreating from an over one-month high hit on Monday.

A reversal in the currency came largely after BOJ Governor Kazuo Ueda said that while the Japanese economy was recovering, it was also showing signs of weakness, particularly in consumption. He struck a somewhat less optimistic tone over the economy than markets were expecting. 

Ueda’s comments came just days before a BOJ meeting, where the central bank is widely expected to signal, or even enact an end to its yield curve control and negative interest rate regime. 

Stronger-than-expected producer inflation data, as well as an upward revision in fourth quarter GDP, had furthered this notion in recent sessions, given that economic resilience gives the BOJ more headroom to tighten policy.

Broader Asian currencies moved in a flat-to-low range. The Australian dollar steadied near two-month highs, while the Indian rupee hovered near a six-month high.

The Singapore dollar fell about 0.1%, while the South Korean won moved little. 

The Chinese yuan rose 0.1% following a stronger-than-expected midpoint fix by the People's Bank, although the outlook for the currency still remained glum in the face of a muted economic recovery.

Dollar steadies from recent losses with CPI data on tap

The dollar index and dollar index futures fell slightly in Asian trade on Tuesday, but steadied from steep losses last week.

Focus was now squarely on upcoming U.S. consumer price index data, which is likely to factor into the Federal Reserve’s plans for interest rates in 2024.

The CPI data is expected to show inflation remaining sticky and well above the Fed’s 2% annual target through February- a trend that is likely to elicit a hawkish outlook from the central bank.

Tuesday’s CPI reading will also be in close focus after several Fed officials, most notably Chair Jerome Powell, warned that the central bank’s stance on interest rate cuts will be largely determined by the path of inflation.

Still, markets maintained their bets on a 25 basis point cut in June, according to the CME Fedwatch tool.