Asia FX muted, dollar struggles at 3-yr low with PCE data on tap

Investing.com-- Most Asian currencies kept to a tight range on Friday after cooling Middle East tensions helped spur strong gains earlier this week, while the dollar meandered at more-than three-year lows ahead of key inflation data. 

The Taiwan dollar was a standout performer in Asia, surging to its strongest level in over three years with weakness in the greenback being a key driver of the currency’s gains. 

A U.S.-brokered ceasefire between Israel and Iran appeared to be holding as of Friday morning. The announcement of the ceasefire had spurred strong gains in Asian currencies earlier this week, although they were seen cooling by Friday. 

Asia FX treads water with tariff deadline in focus 

Broader Asian currencies kept to a tight range amid heightened uncertainty over the U.S. economy and President Donald Trump’s trade tariffs.

Trump’s three-month deadline for trade deals with major economies will expire in early-July, with no major agreements being achieved so far. A lack of trade deals could see the president proceed with his plan to impose steep tariffs on major U.S. trading partners. 

But Trump may also further extend the deadline, given his tendency in the past to not make good on his tariff threats. Still, uncertainty over the deadline kept risk appetite subdued.

U.S. Commerce Secretary Howard Lutnick said on Thursday that Washington had reached a trade deal with China, although he did not divulge any clear details on the purported agreement.  

The Japanese yen’s USDJPY pair was flat even as Tokyo consumer inflation data read softer than expected for June, heralding a potential decline in national inflation. Softer inflation raises some doubts over whether the Bank of Japan has enough headroom to keep raising interest rates. 

The Chinese yuan’s USDCNY pair rose 0.1%, while the Singapore dollar’s USDSGD pair rose 0.1%.

The Australian dollar’s AUDUSD pair was flat, as was the Indian rupee’s USDINR pair. The South Korean won’s USDKRW fell 0.2%. 

Dollar steady near 3-yr low amid Fed independence jitters; PCE data awaited 

The dollar index and dollar index futures both rose slightly in Asian trade on Friday, recovering some ground after falling sharply this week.

The greenback was chiefly battered by growing concerns over the independence of the Federal Reserve, especially as Trump kept up his attacks against Chair Jerome Powell and pushed his demand that the central bank cut interest rates immediately. 

Powell, on the other hand, signaled no intent to cut rates soon, citing heightened uncertainty over the inflationary impact of Trump’s trade tariffs. Minneapolis Fed President Neel Kashkari also echoed this notion on Thursday evening. 

Focus is now squarely on upcoming PCE price index data– the Fed’s preferred inflation gauge– for more cues on the path of interest rates. The print is due later in the day and is expected to show a mild increase in inflation.

Core PCE data is also expected to remain above the Fed’s 2% annual target.