Investing.com — Most Asian currencies moved in a flat-to-low range on Thursday, while the dollar firmed after a strong indication of U.S. consumer inflation dashed hopes that the Federal Reserve will cut interest rates by a wide margin.
Soft inflation data from Japan weighed on the yen, pushing the currency further from its strongest level in eight months. But the yen still remained relatively strong as aggressive comments from the Bank of Japan continue to trickle in.
Apart from the yen, most regional currencies also posted steep losses last week as risk-driven markets were hit by heightened fears of a US recession.
Dollar Strong After Core CPI Beats Expectations and Rate Cuts Dent
The and both rose 0.1% in Asian trading, extending gains from Wednesday after August inflation figures looked higher than expected.
While still dovish, the core reading suggested that inflation could prove more persistent than initially expected, necessitating smaller Fed rate cuts.
Bets that the central bank will cut rates by just 25 basis points at its meeting next week rose substantially after Wednesday’s data, while bets on a 50 basis point rate cut more than halved.
But before next week’s Fed meeting, the focus will be on inflation data due later on Thursday for more clues about inflation.
The prospect of smaller rate cuts bodes ill for Asian markets, as such a scenario heralds tighter US monetary conditions for an extended period of time.
The Japanese yen weakens from an eight-month high after a soft PPI
The Japanese yen retreated from its strongest level in eight months, with the pair rising 0.1% to 142.47 yen.
The yen continued its decline overnight after being softer than expected for August.
The softer inflation pressures raised some questions about how much room the Bank of Japan has to keep raising rates, as the BOJ has indicated it will raise rates further this year if inflation rises.
BOJ board member Naoki Tamura said Thursday that the bank should raise interest rates to at least 1% to avoid inflation risks.
The central bank is on the verge of doing so, with analysts questioning another rate hike after a rate hike at the end of July. data coming out next week will also provide more clues.
Broader Asian currencies moved from flat to low amid uncertainty over US interest rates and a lack of local signals.
The Australian dollar pair rose 0.1%, while the South Korean won and Singapore dollar pair were both flat.
The Chinese yuan pair was flat and suffered some losses this week as sentiment towards the country was hit by weak import data. Reports that US lawmakers were preparing more trade restrictions for Beijing also undermined the yuan.
The Indian rupee pair was flat and hovered close to the 84 rupee level.
