Investing.com — Most Asian currencies were in a flat to lower range on Thursday, while the dollar strengthened, after a strong U.S. consumer price index dashed hopes that the Federal Reserve would make a bigger interest rate cut.
Weak Japanese inflation data weighed on the yen, sending it further down from an eight-month high, but a continued stream of hawkish comments from the Bank of Japan has helped the yen remain relatively strong.
Most regional currencies, except the yen, have also fallen sharply since last week as growing fears of a U.S. recession hit risk-adverse markets.
Core CPI beats expectations, dollar strengthens, rate cut expectations hit hard
In Asia, both stocks rose 0.1 percent, extending gains from Wednesday, after August inflation data came in better than expected.
While the core index is still easing, it suggests inflation may be stronger than initially expected, calling for a small rate cut from the Fed.
Following Wednesday's data, expectations that the central bank will cut rates by just 25 basis points when it meets next week increased significantly, while expectations of a 50 basis point cut fell by more than half.
But attention is now focused on inflation data due to be released later on Thursday for further clues on inflation ahead of the Fed's meeting next week.
The prospect of smaller rate cuts bodes ill for Asian markets as it suggests US financial conditions will remain tighter for longer.
Japanese yen falls from eight-month high as producer price index weakens
The yen rose 0.1 percent to 142.47 yen, retreating from an eight-month high.
The yen continued to fall overnight as it was weaker than expected for August.
The Bank of Japan had indicated its intention to raise interest rates further this year in response to rising inflation, but the softening inflation rate has raised questions about how much room the bank has to keep raising rates.
Bank of Japan board member Naoki Tamura said on Thursday the central bank needs to raise interest rates to at least 1% to head off inflation risks.
The central bank is due to raise interest rates by 2025, but analysts are skeptical of any further hikes after the last in late July. Data due next week is likely to provide further clues.
Asian currencies in general were flat to lower due to uncertainty over U.S. interest rates and a lack of regional data.
The Australian dollar pair rose 0.1%, while the South Korean won and Singapore dollar pairs were both flat.
The Chinese yuan was stable or slightly weaker against the dollar this week as weak import data soured sentiment towards China. Reports that U.S. lawmakers are preparing further trade restrictions against Beijing also sent the yuan lower.
The Indian rupee was stable, hovering around 84 rupees.
