The recent strong reading on U.S. consumer inflation has had a significant impact on Asian currencies. Most Asian currencies moved in a flat-to-low range on Thursday, while the dollar firmed as hopes for a wide margin cut in interest rates by the Federal Reserve were dashed. The dollar index and dollar index futures both rose 0.1% in Asian trade, extending gains from Wednesday after core consumer price index inflation data read higher than expected for August.
Soft inflation data from Japan weighed on the yen, pulling the currency further off its strongest levels in eight months. The yen still remained relatively strong, but hawkish comments from the Bank of Japan continue to trickle in. The USDJPY pair rose 0.1% to 142.47 yen as the yen retreated from its recent highs. The Bank of Japan has signaled that it will raise interest rates higher this year on an increase in inflation, but softer inflation data has raised questions about the bank’s ability to do so.
Apart from the yen, most regional currencies were nursing steep losses as fears of a U.S. recession battered risk-driven markets. The Australian dollar rose 0.1%, while the South Korean won and Singapore dollar were both flat. The Chinese yuan was flat and nursing some losses as sentiment towards the country was dented by weak imports data and reports of more trade restrictions by U.S. lawmakers on Beijing.
The prospect of smaller rate cuts from the Federal Reserve does not bode well for Asian markets, as it signals tighter U.S. monetary conditions for a longer period. Bets that the Fed will only cut rates by 25 basis points when it meets next week have grown substantially after the recent inflation data. This uncertainty over U.S. interest rates, coupled with a lack of local cues, has kept broader Asian currencies in a flat-to-low range.
Before the upcoming Fed meeting, all eyes are on the producer price index inflation data due later on Thursday. This data will provide more cues on inflation and help market participants gauge the future direction of interest rates. With the recent readings on U.S. consumer inflation impacting Asian currencies, the producer price index data will be crucial in determining market sentiment and investor confidence.
The impact of U.S. consumer inflation on Asian currencies has been significant, with the dollar gaining strength and most Asian currencies nursing losses. The uncertainty over U.S. interest rates and a dearth of local cues have kept the broader Asian currencies in a flat-to-low range. As market participants await the upcoming Fed meeting and focus on the producer price index data, the future direction of Asian currencies remains uncertain in the face of evolving global economic conditions.