Asian currencies fall, dollar strong as sticky CPI boosts bets on smaller rate cut By Investing.com

Investing.com– Most Asian currencies moved in a flat-to-lower range on Thursday, while the dollar strengthened as a strong reading in U.S. consumer inflation dashed hopes that the Federal Reserve will cut interest rates with a wide margin.

Weak inflation data from Japan weighed on the yen, pulling the currency further from its strongest levels in eight months. But the yen remained relatively strong as dovish comments from the Bank of Japan continued to emerge.

With the exception of the yen, most regional currencies also suffered steep losses last week as heightened fears of a US recession weighed on risk-on markets.

Strong dollar after core CPI beats expectations, cut rate bets fall

Both rose 0.1 percent in Asian trade, extending Wednesday’s gains after inflation data read more than expected for August.

Although still subdued, the core reading suggested that inflation may turn out to be tighter than initially expected, necessitating smaller rate cuts by the Fed.

Bets that the central bank will cut rates by just 25 basis points when it meets next week rose substantially after Wednesday’s data, while bets on a 50 basis point cut more than halved.

But ahead of next week’s Fed meeting, the focus is on inflation data due later Thursday for more inflation cues.

The prospect of smaller interest rate cuts bodes ill for Asian markets, given that such a scenario portends tighter monetary conditions in the US for longer.

Japanese yen weakens from 8-month highs after weak PPI

The Japanese yen retreated from its strongest levels in eight months, with the pair climbing 0.1% to ¥142.47.

The yen extended overnight losses after reading weaker than expected for August.

The softer inflation print raised some questions about how much room the Bank of Japan has to keep raising interest rates, given that the BOJ has signaled it will raise interest rates higher this year if a rise in inflation.

BOJ board member Naoki Tamura said Thursday that the bank needs to raise interest rates to at least 1 percent to avoid inflationary risks.

The central bank is to be , with analysts doubtful about another rate hike, after a hike at the end of July. dates ahead next week are also set to provide more clues.

Broader Asian currencies moved in a flat-to-lower range amid uncertainty over US interest rates and a lack of local cues.

The Australian dollar rose 0.1%, while the South Korean won and Singapore dollar were both flat.

The Chinese yuan pair has been erratic and suffered some losses this week as sentiment towards the country was hurt by weak import data. Reports that US lawmakers are preparing more trade restrictions on Beijing also undermined the yuan.

The Indian rupee pair was flat and hovered near the 84 rupee level.