The US dollar traded in a narrow range against most Asian currencies on Tuesday as investors waited for fresh US inflation data and comments from Federal Reserve Governor Christopher Waller.
Markets were looking for clearer signals about the future direction of interest rates. Meanwhile, renewed tensions in the Middle East kept oil prices near four-week highs and maintained concerns about inflation.
The US Dollar Index slipped by around 0.1% to approximately 101.2. However, most traders remained cautious ahead of the June Consumer Price Index report.
Investors are also preparing for US producer price data later this week. In addition, Waller’s comments could offer further guidance on whether persistent inflation will keep the Federal Reserve focused on tighter monetary policy.
Rising Oil Prices Keep Inflation Risks in Focus
Oil prices moved higher after US President Donald Trump said the United States would restore a naval blockade against Iran.
The announcement raised fresh concerns about global energy supplies following renewed missile and drone attacks in the Gulf region.
Higher oil prices could increase transportation, production and consumer costs. As a result, markets remain concerned that energy-driven inflation could delay interest rate cuts or even support further monetary tightening.
Despite the geopolitical escalation, broader currency markets showed limited movement ahead of the US inflation report.
Japanese Yen Remains Under Pressure
The USD/JPY currency pair traded close to 162.3 after briefly moving lower earlier in the session.
Traders remained alert to the possibility of intervention as Japanese officials increased discussions about the investment strategy of the country’s state pension fund.
Finance Minister Satsuki Katayama said the Government Pension Investment Fund could review its asset allocation if market conditions changed significantly.
Health Minister Kenichiro Ueno also said the fund’s portfolio could be examined if necessary. However, he played down expectations of any immediate changes.
The comments increased speculation that Japanese policymakers may be considering ways to encourage investment in domestic assets and provide longer-term support for the weak yen.
Yen Sentiment Reaches Extremely Bearish Levels
Bank of America analysts said investor sentiment toward the yen was at its most bearish level since 2022.
Data from the Commodity Futures Trading Commission also showed that leveraged funds held their largest net short positions in the yen since 2007.
The analysts said the latest comments from Japanese officials may indicate that policymakers are approaching a critical level of concern over both the yen and Japanese government bonds.
This could increase the likelihood of additional measures designed to stabilise domestic financial markets.
Asian Currencies Trade Mixed
Other Asian currencies showed mixed performance as investors assessed new regional economic data.
The South Korean won traded largely unchanged, with USD/KRW holding near 1,496. The pair extended Monday’s recovery following a sharp sell-off in Korean financial assets.
USD/TWD also showed little movement as the Taiwan dollar stabilised after recent foreign capital outflows from artificial intelligence-related technology stocks.
Australian Dollar Supported by Improving Sentiment
The Australian dollar strengthened slightly, pushing USD/AUD around 0.2% lower.
Australia’s Westpac Consumer Sentiment Index increased by 4.1% in July. The latest National Australia Bank survey also showed an improvement in business confidence.
However, consumer sentiment remained well below the neutral level of 100. This suggests that households are still cautious despite signs that business conditions are becoming more stable.
Strong China Trade Data Fails to Move the Yuan
China’s June trade figures exceeded market expectations by a wide margin.
Exports rose by 27% compared with the previous year, while imports increased by 36%. This pushed the country’s trade surplus to approximately $125.6 billion.
Despite the strong figures, USD/CNY remained largely unchanged. Offshore USD/CNH edged slightly lower as investors shifted their attention to upcoming lending and credit growth data.
Singapore Dollar Gains After Strong GDP Report
The Singapore dollar strengthened marginally after preliminary data showed that the country’s second-quarter economic growth exceeded expectations.
As a result, USD/SGD moved slightly lower.
In contrast, USD/INR climbed by around 0.7% as traders awaited India’s wholesale inflation and international trade figures.
New Zealand Dollar Outperforms Regional Peers
The New Zealand dollar was among the strongest-performing Asian-Pacific currencies during the session.
USD/NZD declined by nearly 0.7% after Reserve Bank of New Zealand Chief Economist Paul Conway warned about persistent inflationary pressures.
Conway said renewed tensions in the Middle East could increase business costs. He added that further monetary policy tightening may be necessary if companies continue passing those higher costs on to consumers.
US Inflation Data Could Drive the Dollar’s Next Move
The June US CPI report is expected to be the main catalyst for currency markets.
A stronger-than-expected inflation reading could support the dollar by increasing expectations that US interest rates will remain elevated.
However, weaker inflation data could reduce pressure on the Federal Reserve and weigh on the dollar against the yen and other Asian currencies.
