Asia FX ticks up as dollar remains weak; Japan Q1 GDP disappoints

Investing.com-- Most Asian currencies edged higher on Friday, extending gains, as the U.S. dollar remained weak, while focus was on data showing that Japan’s economy contracted much more than expected in the first quarter.

The US Dollar Index, which measures the greenback against a basket of major currencies, fell 0.2%, remaining weak after a sharp decline on Tuesday driven by soft U.S. consumer inflation data.

US Dollar Index Futures were also 0.2% lower in Asian trading.

Japan Q1 GDP shrinks more than expected, yen slightly up

Japan’s economy contracted more than expected in the first quarter of 2025, shrinking at an annualized rate of 0.7%, marking its first decline in a year. 

The contraction exceeded the anticipated 0.2% decline and was driven by a 0.6% drop in exports and flat consumer spending, reflecting the impact of U.S. tariffs and global trade uncertainties. 

The slowdown in domestic demand, coupled with weaker exports, suggests that underlying momentum is fading. 

This deceleration is likely to reduce the Bank of Japan’s flexibility in tightening monetary policy.

Despite this, the Japanese yen’s USD/JPY pair edged 0.3% lower in line with the broader regional trend.

Dollar remains subdued as weak data spurs Fed rate-cut bets

Data on Thursday showed that U.S. producer prices unexpectedly declined in April, driven by the sharpest drop in service costs since 2009. 

Earlier this week, consumer price index data came in softer than expected, easing worries about inflationary pressure from trade tariffs.

Combined with the optimism around the U.S.-China temporary trade truce, investors were hopeful that the Federal Reserve would cut interest rates this year.

This weighed on the greenback, keeping it in tight ranges, and pushing Asian currencies higher, although gains were limited as tariff-induced inflationary measures still posed risks.

The South Korean won’s USD/KRW pair fell 0.3% after sharp losses in the previous session.

The Chinese yuan’s offshore USD/CNH and the onshore USD/CNY pairs were both muted.

The Singapore dollar’s USD/SGD pair edged 0.2% lower, while the Indian rupee’s USD/INR pair ticked down 0.1%.

The Australian dollar’s AUD/USD pair rose 0.3% on Friday.