Asian Currencies Steady as Dollar Holds Losses on CPI-Driven September Rate Cut Bets
Most Asian currencies traded in a tight range on Wednesday, while the U.S. dollar struggled to recover from overnight losses after softer-than-expected inflation data strengthened expectations for a Federal Reserve interest rate cut in September.
Regional currencies posted gains in the previous session, supported by improved market sentiment following a 90-day extension of the U.S.-China trade truce. However, momentum appeared to fade midweek as traders assessed the potential economic fallout from U.S. tariffs and awaited further key data releases in the coming days.
Despite the caution, the dollar’s weakness has provided some support for Asian currencies this week.
The Chinese yuan’s USDCNY pair was flat after recent declines earlier in the week, following news that the U.S. and China had extended their temporary trade agreement. U.S. officials also signaled plans to resume negotiations with Beijing in the coming months.
Elsewhere, the South Korean won’s USDKRW pair slipped 0.1%, while the Singapore dollar’s USDSGD pair was unchanged.
The Australian dollar’s AUDUSD pair held steady after Tuesday’s gains, despite the Reserve Bank of Australia delivering a widely expected 25 basis point rate cut. The RBA also hinted at further easing amid slowing inflation and economic growth.
Meanwhile, the Indian rupee’s USDINR pair hovered near record lows, weighed down by the threat of U.S. tariffs of up to 50% on Indian imports.
Dollar Under Pressure as CPI Data Fuels September Fed Cut Outlook
The U.S. dollar index and futures were little changed in Asian trade after dropping 0.4% each on Tuesday. The greenback weakened after July’s consumer price index (CPI) data came in slightly below expectations, bolstering bets for a September rate cut.
While core CPI inflation rose slightly more than forecast, it was not enough to shake market confidence in a rate reduction next month. According to the CME FedWatch Tool, traders are now pricing in a 93.6% probability of a 25 basis point cut in September, up from 83.8% the day before.
Japanese Yen Slips on Weak Producer Price Data
The Japanese yen’s USDJPY pair rose 0.2% to 148.08, showing limited strength despite broad dollar weakness.
The yen was pressured by July’s producer price index (PPI) data, which fell to an 11-month low. Although the reading slightly beat forecasts, it added to uncertainty over whether the Bank of Japan can continue raising interest rates.
The BOJ has maintained that rate hikes will proceed in line with sustained inflation. However, recent data has shown a steady decline in Japanese price growth.
