Investing.com – Most Asian currencies rose on Thursday after some lower readings of U.S. consumer inflation pushed the dollar to a one-month low and prompted traders to increase bets on a September interest rate cut.
But growth in some regional units was held back by a combination of weak economic data and trade tensions, especially in Japan, China and Australia.
Dollar falls to more than 1-month low as CPI data boosts hopes for rate cuts
In Asian trade, the and indices fell 0.2%, leading to sharp one-day losses after a month of inflation and being lower than expected in April.
The data, followed by softer-than-expected data, raised hopes that inflation would fall further in the coming months, giving the Fed more confidence that it can begin cutting interest rates.
That led traders to increase their expectations of a 25 basis point cut in September, the probability of which has risen to nearly 54% from 49% last week, according to data.
Still, the consumer price index remains well above the Fed’s annual 2% target, while a number of Fed officials also warned last week that the central bank will need more evidence that inflation is falling.
The Japanese yen is recovering, but weak GDP is holding back the recovery
The Japanese yen, which is inversely related to currency strength, fell 0.6 to around 154 yen on Thursday, extending an overnight decline as the dollar weakened.
But the pair was still well above levels reached earlier in May, when government intervention in foreign exchange markets was seen.
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The yen’s recovery stalled as gross domestic product data showed the Japanese economy contracted much more than expected in the first quarter as consumer spending stalled.
This has raised doubts about how much headroom the Bank of Japan has to raise interest rates further.
The growth of other major Asian currencies was also constrained by specific factors.
Chinese Yuan, Australian dollar underperforms
The Chinese yuan fell only slightly as sentiment towards China was dented by Washington’s imposition of stricter trade tariffs on key Chinese sectors such as electric vehicles, medicines and solar technology. Beijing threatened retaliation for the move.
Chinese and data should be out on Friday.
The Australian dollar was little changed as expectations for a cooling labor market unexpectedly increased, which in turn gives the Reserve Bank less incentive to raise interest rates further. Concerns about China have also weighed on the Australian dollar, which has a high trade exposure to the country.
Other Asian currencies rose as the dollar weakened. The South Korean won fell 0.4% and the Singapore dollar fell 0.1%.