Asia FX firms as dollar steadies before Powell, inflation cues

Investing.com– Most Asian currencies firmed on Thursday while the dollar steadied before more cues on interest rates, especially from an address by Federal Reserve Chair Jerome Powell later in the day. 

The Chinese yuan continued to strengthen after hitting a 16-month high, as traders cheered more stimulus measures from Beijing released earlier this week. Optimism over China also boosted broader regional currencies. 

The Japanese yen was an outlier, extending overnight losses as sentiment towards Japan soured before the 2024 Liberal Democratic Party presidential election on Friday, which will effectively determine the country’s next Prime Minister 

The dollar cooled in Asian trade as an overnight rebound stalled, with the greenback nursing steep losses over the past week after a bumper interest rate cut by the Fed. 

Dollar steady, Powell speech awaited 

The dollar index and dollar index futures both steadied in Asian trade after logging a sharp rebound on Wednesday. 

The greenback recouped some losses seen over the past week, after the Fed cut interest rates by 50 basis points and marked the beginning of an easing cycle. 

Focus this week is squarely on more cues from the Fed, with a string of policymakers set to speak in the coming days. Chair Jerome Powell is set to speak later on Thursday.

PCE price index data- the Fed’s preferred inflation gauge- is due on Friday, and is also expected to factor into the Fed’s next move. Before that, a revised reading on second quarter gross domestic product, as well as weekly jobless claims data are due on Thursday. 

Chinese yuan firm as stimulus cheer persists 

The Chinese yuan’s USDCNY pair fell 0.2% on Thursday, remaining at its lowest level since May 2023. 

The yuan clocked strong gains after Beijing unveiled a string of major stimulus measures aimed at shoring up growth. The People’s Bank reduced bank reserve requirements by 50 basis points, while also lowering mortgage rates. 

The move ramped up confidence in a Chinese economic recovery, buoying the yuan. But looser monetary conditions are expected to limit the yuan’s recovery. 

Optimism over China boosted other Asian currencies, with the Australian dollar’s AUDUSD pair rising 0.3%. 

The South Korean won’s USDKRW pair fell 0.3%, while the Singapore dollar’s USDSGD pair fell 0.2%. The Indian rupee’s USDINR pair rose slightly after rising on Wednesday. 

The Japanese yen’s USDJPY pair rose 0.1%, moving further away from its 2024 lows as sentiment towards Japan turned uncertain before the LDP elections on Friday, which are set to determine the country’s next Prime Minister. 

Analysts expect a leadership change in Japan to stymie the Bank of Japan’s plans to raise interest rates in the near-term.