Asian currencies experienced declines on Monday, with the dollar regaining some strength as investors braced themselves for upcoming signals on interest rates and U.S. inflation.
The anticipation of various regional economic indicators, particularly Japanese inflation and Chinese purchasing managers index data, added to the market's nervousness, fueled by growing concerns about slowing growth in the region's major economies.
The Japanese yen showed minimal movement on Monday, hovering above the 150 level against the dollar and remaining close to three-month lows. The focal point for the week is the Japanese Consumer Price Index (CPI) data for January, scheduled for release on Tuesday.
Expectations are for core inflation to fall within the Bank of Japan's 2% annual target range, providing little motivation for the central bank to aggressively tighten its policy.
This expectation has been a significant factor weighing on the yen, particularly with U.S. interest rates expected to stay elevated for an extended period. However, potential losses in the yen were constrained by the looming threat of government intervention, as levels above 150 have prompted intervention in the past.
The dollar index and dollar index futures both edged up by 0.1% in Asian trade on Monday, rebounding after their first weekly loss in 2024. While the greenback remained within sight of three-month highs, a series of warnings from Federal Reserve officials emphasized that the bank was not rushing to start early interest rate cuts, especially with inflation proving persistent.
The Personal Consumption Expenditures (PCE) price index data, the Fed's preferred inflation metric, is anticipated to provide further insights into inflation this week. Several additional Fed officials are expected to speak, likely reaffirming the outlook of higher interest rates for an extended period.
This scenario poses challenges for Asian markets, diminishing the attractiveness of high-yielding, high-risk assets. Most regional currencies faced declines on Monday, with the Australian dollar and South Korean won each losing 0.1%. Australian CPI data for January is also on the agenda this week.
The Indian rupee remained steady, while the Singapore dollar declined by 0.1%.
The Chinese yuan exhibited little movement on Monday following a stronger-than-expected midpoint fix by the People’s Bank. Market sentiment towards Chinese markets remained cautious ahead of further cues on China's economy, particularly the purchasing managers index data for February expected later in the week.
Concerns about a slowing economic recovery have been a significant factor affecting the yuan, keeping the currency close to a three-month low.
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