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Investing.com-- Most Asian currencies moved in a tight range on Wednesday, while the dollar pulled back mildly from recent gains amid caution before the conclusion of a Federal Reserve meeting later in the day.
Currency markets clocked some gains earlier this week on optimism over a U.S.-Europe trade deal. But this optimism was short-lived amid growing caution over the Fed’s rate decision, as well as a looming deadline for more U.S. trade tariffs.
Focus this week is also on a Bank of Japan meeting and key Chinese purchasing managers index data on Thursday, as well as U.S. nonfarm payrolls data on Friday.
Dollar edges lower as Fed rate decision looms
The dollar index and dollar index futures both fell about 0.1% in Asian trade, retreating after logging strong gains earlier in the week.
The greenback was buoyed by optimism over the U.S. signing a trade deal with the European Union, which will see the bloc subject to 15% tariffs. The EU will also invest $600 billion in the United States.
The dollar was also supported by increasing conviction that the Fed will leave rates unchanged and remain non-committal towards further easing, despite pressure from President Donald Trump to cut rates.
But pressure from Trump could spell some discord for Fed policymakers. Governors Christopher Waller and Michelle Bowman could vote against Powell’s decision to hold, the Wall Street Journal’s Nick Timiraos said on Tuesday.
Some signs of cooling in the labor market, coupled with more clarity on Trump’s tariffs could also leave the Fed more open towards eventually cutting rates.
Australian dollar edges past soft CPI data
The Australian dollar’s AUDUSD pair rose 0.1% on Wednesday, even as consumer price index inflation data read slightly cooler than expected for the second quarter.
The print showed inflation easing further from the prior quarter, while core inflation remained within the Reserve Bank of Australia’s 2% to 3% annual target. Monthly CPI data for June also showed a bigger-than-expected drop.
Softer inflation gives the RBA more headroom to cut interest rates, after the central bank unexpectedly left rates unchanged during its July meeting.
Broader Asian currencies moved little in anticipation of more economic signals this week, while the prospect of U.S. rates remaining unchanged also weighed.
The Japanese yen’s USDJPY pair fell 0.4% after advancing sharply in recent sessions, with focus squarely on the BOJ’s decision on Thursday. The central bank is widely expected to leave rates unchanged, while remaining non-committal to raising rates amid uncertainty over the Japanese economy and government leadership.
The Chinese yuan’s USDCNY pair moved little, with PMI data on Thursday expected to show some improvement after the U.S. and China further deescalated their trade conflict in recent months.
The Singapore dollar’s USDSGD pair fell 0.1% after the island state’s Monetary Authority left its policy settings unchanged on Wednesday, amid improving economic growth.
The South Korean won’s USDKRW pair fell 0.5% as negotiations over a U.S. trade deal continued. Several major economies are racing to clinch a U.S. trade deal before Trump’s August 1 deadline this week.
The Indian rupee’s USDINR pair was flat, with the rupee seeing some weakness after Trump said India could see a 20% to 25% tariff. A New Delhi-Washington trade deal also appears unlikely before August 1.