Asia FX advances, dollar little enthused by hot CPI data

© Reuters.

Investing.com-- Most Asian currencies firmed slightly on Friday, while the dollar fell from near two-month highs even as hot consumer inflation data furthered bets on a smaller interest rate cut by the Federal Reserve.

But most regional currencies were nursing losses in recent sessions as recent U.S. data pointed to interest rates remaining relatively higher for longer. 

The South Korean won firmed even as the Bank of Korea cut interest rates and flagged more potential reductions, while the Chinese yuan rose with focus squarely on more fiscal stimulus measures from Beijing. 

Dollar muted as markets weigh hot CPI, high jobless claims 

The dollar index and dollar index futures fell 1% each in Asian trade, retreating from a one-month high hit in overnight trade.

While the dollar initially rallied on a stronger-than-expected consumer price index inflation reading for September, it tapered its gains after labor data showed a bigger-than-expected increase in weekly jobless claims.

Traders still maintained bets that the Fed will cut interest rates by 25 basis points in November, with CME Fedwatch showing a 81.3% chance. 

But signs of weakness in the labor market are likely to push the Fed into reducing rates consistently in the medium-term, even as inflation remains relatively elevated. 

Producer price index inflation data is due later on Friday and is expected to offer more cues on the world’s biggest economy.

Chinese yuan firm with fiscal stimulus in sight 

The Chinese yuan firmed slightly, with the USDCNY pair falling 0.1%. 

Focus was squarely on an upcoming finance ministry briefing, where the government said it will outline plans for fiscal stimulus. 

Analysts expect Beijing to outline at least 2 trillion yuan ($283 billion) of fiscal support, with a bulk of the amount being targeted at supporting private consumption.

Saturday’s briefing comes after a briefing on recent monetary stimulus measures largely underwhelmed. Investors also remained doubtful over China’s capacity for more fiscal measures, given the country’s stretched debt levels. 

South Korean won firms past BOK rate cut 

The South Korean won firmed on Friday, with the USDKRW pair falling 0.2%. 

Strength in the won came even as the BOK cut rates by 25 basis points to 3.25%- its first rate cut in over four years.

The central bank left the door open for more easing, as the Korean economy grapples with sluggish growth and cooling inflation. 

Broader Asian currencies tread water and were mostly nursing weekly losses, as the dollar headed for a weekly gain.

The Japanese yen’s USDJPY pair steadied at 148.71 yen, after coming close to 150 yen earlier in the week. 

The Australian dollar’s AUDUSD pair added 0.2% after losing ground earlier in the week.

The Indian rupee’s USDINR pair remained close to record highs hit above 84 rupees.