Asian currencies and the U.S. dollar showed little movement on Wednesday as investors considered the Federal Reserve’s future interest rate decisions. This came after inflation data in the U.S. was softer than expected, along with a temporary trade truce between the U.S. and China.
The U.S. Dollar Index, which tracks the greenback against other major currencies, dipped slightly during Asian trading on Wednesday. This followed sharp falls in the previous session.
On Tuesday, the U.S. reported that consumer price index (CPI) inflation was lower than analysts predicted. This eased concerns about the economic impact of U.S. tariffs on imports.
Additionally, the U.S. and China jointly announced on Monday that they would temporarily reduce some tariffs. This move helped reduce worries about a possible global recession.
These developments gave the Federal Reserve some flexibility regarding interest rates. However, experts warned that the Fed might hold off on rate changes while watching for progress in trade talks.
In their last meeting, Fed officials showed a preference to wait for clear signs of economic decline before lowering rates. Their focus remains on maintaining credibility in fighting inflation, rather than providing short-term economic relief.
An analyst note from ING summed up the situation: “The easing of trade tensions supports economic growth, but it also means inflation may become less of a concern for the Fed. This limits the chance of rate cuts.”
Following these expectations, the dollar weakened on Tuesday and stayed quiet on Wednesday.
The Japanese yen moved against the trend by strengthening. The USD/JPY pair fell by 0.5%, continuing a recent decline. This came after data on Wednesday showed Japan’s wholesale inflation rose to 4.0% in April. The higher inflation indicates ongoing price pressures, likely encouraging the Bank of Japan to raise interest rates further.
Meanwhile, most other Asian currencies showed little change.
The Chinese yuan’s offshore rate (USD/CNH) increased slightly by 0.2%, while the onshore yuan (USD/CNY) stayed mostly flat.
The South Korean won (USD/KRW) and Singapore dollar (USD/SGD) also remained stable.
The Australian dollar (AUD/USD) gained a small 0.1%.
The Indian rupee (USD/INR) was steady after falling in the past two sessions, as tensions between India and Pakistan remain elevated.
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