Investing.com – Most Asian currencies weakened on Thursday as better-than-expected U.S. inflation data sent the dollar to a five-month high and weakness in the Japanese yen left markets wary of any potential intervention.
Traders were seen largely abandoning bets on the Federal Reserve’s June interest rate cut, putting further pressure on Asian currency markets in the short term.
Weak inflation data from China also weighed on sentiment as the deflationary trend in Asia’s largest economy persisted.
Dollar hits 5-month high as June rate cut bets fade
The pair fell slightly in Asian deals on Thursday after hitting five-month highs in the previous session.
The dollar strengthened mainly due to hotter-than-expected data for March, which strengthened the view that US inflation is moving above the Fed’s annual target of 2%.
The data, combined with a hawkish outlook, led traders to largely overstate expectations for a central bank rate cut in June. The minutes also come on the heels of repeated warnings from Fed officials about severe inflation, delaying any potential rate cut.
The prospect of US interest rate hikes and extensions represents more upside for the dollar and bodes poorly for high-risk, high-yield Asian currencies.
Yen intervention in focus: USDJPY tests 153, reaching 34-year high
The Japanese yen strengthened slightly on Thursday, stabilizing at 152.86 after rising above 153 in overnight trade. The pair also reached its highest level since 1990.
But further growth of the USDJPY pair was stopped by the expectation of intervention in the foreign exchange market by the Japanese government.
On Thursday, several senior financial officials, notably Deputy Finance Minister Masato Kanda, issued further warnings about possible intervention in the foreign exchange market. Kanda led record intervention levels in 2022, the last time the USDJPY pair tested 1990 levels.
China Inflation Eases, USDCNY Nears 5-Month High
The Chinese yuan is treading water on Thursday, although the pair still remains near five-month highs.
But further growth of the USDCNY pair was limited by the strong fixation of the midpoint by the People’s Bank.
Data on Thursday showed the contraction in March was larger than expected, although it contracted for the 18th month in a row, signaling a persistent deflationary trend in Asia’s largest economy.
Asian currencies remained broadly flat to low. The Australian dollar {{|AUDUSD}} rose 0.1% after sharp losses overnight, while the South Korean won also stabilized after an overnight surge.
The Singapore dollar fell less than 0.1%, while the Indian rupee remained near record highs above 83.