Asia FX muted ahead of PCE test; Yen firms have strong CPI as yuan hits 2024 peak by Investing.com

Investing.com– Most Asian currencies remained in a tight range on Friday as the dollar pared recent gains in anticipation of key inflation data that is likely to weigh on the outlook for interest rates.

The Japanese yen saw some strength, nearing levels seen earlier in the month, as strong inflation data from Tokyo boosted the case for a Bank of Japan call.

The Chinese yuan hit its strongest level in 2024 as news of more positive policy measures from Beijing spurred a broader rally in local markets.

Most regional currencies were still headed for gains in August as the greenback led to a plunge to 13-month lows amid growing belief that the Federal Reserve will cut interest rates in September. But that trade has cooled moderately this week.

Dollar holds weekly rebound, PCE data expected

And both stabilized in Asian trade and were set for their first positive week in five. But the greenback was still trading down 2.6% in August, its worst month since November 2023.

The dollar was helped by lingering signs of US economic resilience after data on Thursday showed the economy grew more than initially expected in the second quarter.

The data – the Fed’s preferred gauge of inflation – is due later Friday and is also expected to show that inflation rose slightly in July.

A strong economy and sticky inflation give the Fed less incentive to cut interest rates sharply. Although traders still maintained bets for a September easing, they were more geared towards a smaller cut of 25 basis points.

Japanese yen firms as Tokyo CPI beat expectations

The Japanese yen advanced on Friday, with the pair down 0.1% to ¥144.84. The pair was near the lows seen in early August during the peak of the pro-yen trade.

showed that inflation rose slightly more than expected in August, with core inflation returning to the Bank of Japan’s annual target of 2 percent amid an improvement in private spending.

The reading promoted the idea that rising inflation will give the BOJ more room to raise interest rates this year. The CPI reading also helped markets look beyond the disappointments and prints.

Chinese yuan hits 2024 peak on stimulus hopes, PBOC support

The Chinese yuan strengthened on Friday, with the pair hitting its lowest level since late December.

The yuan, along with broader Chinese markets, was buoyed by news that Beijing planned to refinance $5.4 trillion in mortgages – offering a chance for the housing market, which is at the heart of China’s economic downturn.

But a key support point for the yuan was a series of strong midpoint fixes by the People’s Bank as it acted to protect the Chinese currency from further losses.

Broader Asian currencies moved in a tight range with traders on the sidelines ahead of the US inflation reading.

The Australian dollar rose 0.1% and was close to a one-month high. data is weaker than expected for July, falling after two months of strong growth.

The South Korean won pair was up 0.1%, while the Singapore dollar pair was flat.

The Indian rupee pair moved further away from the 84-rupee level, but still remained close to the record highs reached in early August.