Asia FX flat amid tariff, rate jitters; dollar steady before CPI data

Investing.com-- Most Asian currencies moved little on Wednesday as traders remained on edge over increased U.S. trade tariffs under President Donald Trump, while the dollar steadied ahead of key inflation data. 

Regional currencies were also pressured by comments from Federal Reserve Chair Jerome Powell that the central bank was in no hurry to cut interest rates. 

Still, the dollar fell in overnight trade as traders locked in some profits after a tariff-driven rally in the greenback this week. This offered some breathing room to Asian units.

Japanese yen weakens from 2-mth high

The Japanese yen was an outlier among Asian currencies, weakening sharply on Wednesday after hitting a near two-month high last week. 

The USD/JPY pair rose 0.8% to 153.64 yen.

Bank of Japan Governor Kazuo Ueda said the central bank will continue to target its 2% inflation target, although he struck a slightly less hawkish tone than seen in recent comments. 

Ueda also flagged uncertainty over U.S. policies under Trump, and that the BOJ was waiting to gauge the economic impacts of Trump’s policies. 

While the yen had benefited from several hawkish signals over the past two weeks, it faced pressure from higher U.S. Treasury yields this week. 

Asia FX muted as Powell downplays rate cut bets 

Broader Asian currencies kept to a tight range, especially after the Fed’s Powell said in a Tuesday testimony that the central bank was in no hurry to cut interest rates, citing sticky inflation and resilience in the U.S. economy.

The Australian dollar’s AUD/USD pair rose 0.2%, while the Chinese yuan’s USD/CNY hovered around 7.31 yuan.

The Singapore dollar’s USD/SGD pair was flat, as was the South Korean won’s USD/KRW pair. 

The Indian rupee’s USD/INR pair fell 0.5% in an extended fall from recent record highs, as the Reserve Bank of India (NSE:BOI) appeared to have intervened in currency markets to support the falling currency. 

Dollar edges higher with CPI data in focus

The dollar index and dollar index futures both rose slightly in Asian trade after clocking some overnight losses, as traders stepped back from a tariff-driven rally in the greenback.

The dollar was boosted by Trump imposing 25% tariffs on aluminum and steel imports this week. Trump also flagged plans to introduce reciprocal tariffs against major U.S. trading partners, and warned that his current tariffs could go higher.

News of the tariffs boosted the greenback, given that such duties favor the dollar in international trade. 

Traders were also betting that the tariffs- which will be borne largely by U.S. importers- will underpin U.S. inflation in the long term, keeping interest rates high.

To that end, focus is now on key U.S. consumer price index inflation data for January, due later in the day. The reading is expected to have remained steady from December, amid growing signs of sticky inflation in the country.

Goldman Sachs analysts expect core CPI- which excludes volatile items and measures underlying inflation- to read slightly above consensus.