Most Asian currencies edged lower on Monday as traders showed a slight preference for the U.S. dollar ahead of key U.S. inflation data expected later this week, which is likely to provide further insights into the direction of interest rates.
Trading volumes in the region were somewhat muted due to a market holiday in Japan, which also contributed to a slight weakening of the yen against the dollar. The USD/JPY pair increased by 0.3% to 147.07 yen, continuing to pull back after a strong rally over the past month.
Anticipation of upcoming economic reports and central bank meetings across Asia kept traders cautious, while sentiment was further dampened by reports suggesting that Iran might potentially launch a strike against Israel in the coming days.
Dollar Holds Steady, CPI Data in Focus
The dollar index and dollar index futures remained relatively stable during Asian trading, settling after a week of significant volatility.
This week’s spotlight is on the upcoming U.S. consumer price index data, scheduled for release on Wednesday, which could offer more clarity on the state of the world’s largest economy.
The data is expected to indicate a slight cooling of inflation in July, a trend that may give the Federal Reserve more confidence to start cutting interest rates.
The dollar has been under pressure recently due to concerns over a potential U.S. recession and expectations of more aggressive rate cuts, with traders currently pricing in a 50 basis point cut in September, according to CME FedWatch.
However, strong labor market data from last week has led some to believe that fears of a U.S. recession may have been overstated.
Chinese Yuan Weakens, Economic Data in Focus
The Chinese yuan weakened on Monday, with the USD/CNY pair rising by 0.2%.
Although the People’s Bank of China has been providing consistent support to prevent major losses in the yuan, lingering doubts about China’s economic outlook have kept traders largely bearish on the currency.
This week, attention is on China’s industrial production and retail sales data, which will offer more insights into the country’s primary economic drivers.
Overall, Asian currencies trended lower, as traders remained wary of risk-sensitive assets ahead of more economic cues from the world’s largest economies.
The Indian rupee’s USD/INR pair hovered near record highs, finding some support from the Reserve Bank of India’s slightly hawkish tone last week. India’s CPI inflation data is also expected later on Monday.
The South Korean won’s USD/KRW pair rose by 0.4%, while the Singapore dollar’s USD/SGD pair edged up slightly.
The Australian dollar was an outlier, with the AUD/USD pair gaining 0.2% following a series of hawkish signals from the Reserve Bank of Australia last week.
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