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Investing.com-- Most Asian currencies drifted lower on Friday amid concerns over President Donald Trump’s trade tariffs and a higher-for-longer outlook for U.S. interest rates, while the dollar firmed ahead of key labor data.
Weak purchasing managers index data from China weighed on the yuan, while the Japanese yen saw fleeting gains even as the Bank of Japan struck a hawkish stance on Thursday.
Most regional currencies were nursing weekly losses, while the dollar was headed for a weekly gain amid growing conviction that the Federal Reserve will not cut interest rates in the near-term.
Dollar set for best week in 2025; nonfarm payrolls awaited
The dollar index and dollar index futures steadied at a two-month high in Asian trade, and were set to add about 2.4% in their best week so far in 2025.
The greenback was buoyed chiefly by the Fed keeping interest rates steady and signaling no intent to cut rates in the near-term. Chair Jerome Powell cited persistent uncertainty over the inflationary impact of Trump’s tariffs, which would likely delay any potential rate cuts.
Inflation and the labor market are the Fed’s biggest considerations for altering interest rates. Nonfarm payrolls data for July, due later in the day, is set to provide more cues on the latter.
Nonfarm payrolls growth is expected to have slowed in July from the prior month, reflecting some cooling in the labor sector. But the figure has consistently outperformed expectations for the past four months, as the labor market remained robust.
A strong labor sector gives the Fed less impetus to cut interest rates.
Chinese yuan dips on weak PMIs, Asia FX falls
Among Asian currencies, the Chinese yuan’s USDCNY pair rose 0.1%, following a swathe of weak PMIs this week.
S&P Global PMI data on Friday showed China’s manufacturing sector contracted in July, coming in line with government data released on Thursday.
The PMIs pointed to sustained weakness in Chinese business activity, which contracted despite easing trade tensions with the United States.
China’s Politburo offered few direct details on how it plans to support economic growth in the coming months, raising more questions over the country’s trajectory. A host of Chinese economic readings for July are also due in the coming weeks.
The Japanese yen’s USDJPY pair steadied near 151 yen on Friday, with the yen at its weakest level in four months. The currency took few positive cues from the BOJ stating that it will hike interest rates if growth and inflation continue to rise.
Broader Asian currencies were on the backfoot after Trump signed an order outlining trade tariffs against a host of major economies, effective in seven days.
While the tariffs are broadly lower than those threatened by Trump in April, they still sparked uncertainty over their economic impact, especially on U.S. interest rates.
The Indian rupee’s USDINR pair hovered around 87.5 rupees after India was slapped with a 25% levy.
The South Korean won’s USDKRW pair rose 0.5%, with the country facing a 15% U.S. duty. Sentiment towards Korean markets was also dented by a new government proposal to increase both corporate income and investment tax rates.
The Australian dollar’s AUDUSD pair fell 0.1%, while the Singapore dollar’s USDSGD pair was flat.