Asian currencies firm as dollar hit by softer U.S. inflation

by Jonathan Adams
Asian currencies

China’s yuan was stable at 7.2627 in early offshore trade, having added a little on the dollar overnight

Asian currencies were firm on Thursday against a dollar hit by softer-than-expected U.S. inflation, excluding the yen which remained squeezed ahead of a Bank of Japan (BOJ) meeting and as U.S. policymakers indicated rates would be kept high for a while yet.

Overnight the euro rose 0.6% and surpassed its 200-day moving average, last buying $1.0811. The Aussie dollar added 0.9% to $0.6662 and the New Zealand dollar jumped to a five-month high above $0.62 before settling at $0.6183. The yen jumped, but only by nearly 0.2%.

Gains had been larger immediately after the U.S. inflation report, which showed consumer prices flat month-to-month in May against market expectations of a 0.1% increase.

They were pared when the Fed left the funds rate on hold at 5.25-5.5% and policymakers’ median projection for the number of reductions this year dropped to just one, from three in March.

Sterling added 0.5% overnight to $1.2798. Morning moves were modest in Asia trade, though currencies like Indonesia’s rupiah were likely set for some relief.

Despite the Fed’s projections, markets stuck with pricing in nearly two 25-bp rate cuts this year.

I think markets are looking at the U.S. dollar as weakening, with fluctuations in between, according to Westpac strategist Imre Speizer in Auckland. That is mostly because of Fed rate reductions, which are still priced in for this year.

China’s yuan was stable at 7.2627 in early offshore trade, having added a little on the dollar overnight.

Fed Chair Jerome Powell struck a familiar tone in his news conference and emphasised policymakers would be sensitive to economic data. Although less cuts were projected for 2024, policymakers had them pencilled for 2025 or 2026.

Although the rate-cut view was more hawkish than in March we think the details moderate that hawkishness, according to John Velis, Americas macro strategist at BNY, noting 8 of 19 policymaker projections were for two cuts this year.

In Japan, the BOJ concludes a two-day policy meeting on Friday and markets are expecting some sort of announcement or indication that the bank will be pulling back on massive bond purchases to allow further rises in Japanese yields.

The yen was last at 156.82 to the dollar, while it hit a 17-year low of 97.06 per New Zealand dollar overnight and a 16-year low of 200.91 on sterling.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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