Asia FX weakens as China PMIs disappoint; Dollar steady before PCE data

Investing.com-- Most Asian currencies drifted lower on Friday, with the Chinese yuan moving back towards six-month lows after disappointing business activity readings, while the dollar steadied in anticipation of key inflation data. 

Regional currencies also remained under pressure amid persistent concerns over high-for-longer U.S. interest rates, as hawkish comments from Federal Reserve officials continued to trickle in.

But they saw some relief on Thursday, as the dollar fell from over two-week highs following a softer reading on gross domestic product data. 

Dollar steadies from overnight losses, PCE test awaits 

The dollar index and dollar index futures rose 0.1% in Asian trade, steadying from overnight losses after a revised reading on first-quarter GDP showed the economy grew less than initially expected. 

The reading signaled cooling in the U.S. economy, driving up some hopes that the Fed could eventually soften its hawkish stance to foster economic growth.

But fears of sticky inflation and high interest rates remained squarely in focus, with PCE price index data- the Fed’s preferred inflation gauge- due later on Friday.

The reading is expected to show inflation cooled slightly in April, but remained well above the Fed’s 2% annual target. 

Chinese yuan weakens as PMIs disappoint; more stimulus in focus 

The Chinese yuan’s USDCNY pair rose 0.1%, moving back towards six-month highs hit earlier this week.

Purchasing managers index data showed that Chinese business activity deteriorated in May after some improvement over the past two months. Manufacturing PMI unexpectedly fell back into contraction territory, while non-manufacturing PMI grew at a slower-than-expected pace.

While the readings presented renewed headwinds for the Chinese economy, they also fueled bets on increased stimulus spending from Beijing to support growth. But said spending- which is likely to entail looser monetary conditions- is likely to bode poorly for the yuan.

Other China-exposed currencies moved in a flat-to-low range. The Australian dollar’s AUDUSD pair rose slightly, while the South Korean won’s USDKRW pair rose 0.5%. 

The Singapore dollar’s USDSGD pair rose nearly 0.1%. 

Among other Asian currencies, the Japanese yen’s USDJPY pair moved little on Friday after falling sharply in overnight trade, tracking some weakness in the dollar. 

Consumer price index data from Tokyo showed inflation in Japan’s capital grew as expected in May, although it still remained relatively weak. Soft inflation bodes poorly for the yen, as it gives the Bank of Japan less impetus to begin raising interest rates. 

The Indian rupee’s USDINR pair remained close to recent record highs, above 83 rupees, before the results of the 2024 general elections on June 4.