Asia FX dithers as dollar steadies before Powell speech; yen muted after CPI data

Investing.com-- Most Asian currencies weakened slightly on Friday, while the dollar steadied after recent gains as traders awaited more cues on U.S. interest rates from Federal Reserve Chair Jerome Powell. 

The Japanese yen retreated after data showed consumer inflation cooled in July. But underlying inflation remained sticky, limiting declines in the yen and keeping speculation over the Bank of Japan’s rate hikes in play. 

The yen, along with broader Asian currencies, was headed for weekly losses amid cooling bets that the Fed will cut interest rates in September. This notion benefited the dollar. 

Japanese yen weakens as CPI inflation cools

The yen’s USDJPY pair rose 0.2%, marking a muted reaction to consumer price index data that showed inflation cooled in July.

But core inflation fell slightly less than expected, while underlying inflation remained well above the BOJ’s 2% annual target.

Sticky core inflation helped limit the yen’s losses, amid increasing bets that the BOJ will hike interest rates again this year. 

The central bank is facing increasing pressure to raise interest rates further, especially amid persistent signs of sticky inflation and resilience in the Japanese economy. 

Still, the USDJPY pair was trading up 0.9% this week, as the yen and most of its Asian peers were battered by waning confidence in a September rate cut by the Fed.

Dollar steady with Powell in focus; Sept rate cut bets wane 

The dollar index and dollar index futures both rose about 0.1% in Asian trade, and were set to add 0.9% this week. 

The greenback was boosted chiefly by cooling bets that the Fed will cut rates in September, especially after the minutes of the Fed’s July meeting showed most policymakers remained on edge over inflation and the impact of President Donald Trump’s trade tariffs. 

Fed Fund futures are pricing in a 73.1% chance for a 25 basis point cut in September, down sharply from a 92.2% probability a week ago, CME Fedwatch showed.

Focus is now squarely on an address by Fed Chair Powell at the Jackson Hole Symposium later on Friday. Markets will be watching to see whether some signs of cooling U.S. inflation and job growth will invite a paradigm shift from the Fed Chair, who has so far remained largely non-commital towards more rate cuts. 

Doubts over U.S. rate cuts pressured most Asian currencies this week, with markets cautious ahead of Powell’s address.

The Chinese yuan’s USDCNY pair rose slightly and was trading mildly higher for the week.

The South Korean won’s USDKRW pair fell 0.5% but was trading up 0.3% this week. The Taiwan dollar was among the worst performers in Asia this week, with the USDTWD pair trading up 1.7%. 

The Australian dollar’s AUDUSD pair was flat, as was the Singapore dollar’s USDSGD pair.

The Indian rupee’s USDINR pair rose 0.1% after falling from record highs hit earlier in August. Positive PMI data released on Thursday highlighted some resilience in the Indian economy, as it faces headwinds from increased U.S. trade tariffs.