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Asian Currencies Hold Steady as Focus Shifts to US Inflation; Yuan Weakens on Tariff Fears

Most Asian currencies remained relatively stable on Friday, with the dollar showing signs of stabilization following overnight declines. Attention turned towards key U.S. inflation data expected next week, which is anticipated to offer insights into future interest rate movements.

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The Chinese yuan depreciated, along with currencies exposed to China’s trade dynamics, in response to reports suggesting the U.S. was preparing additional trade tariffs on Beijing.

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While the dollar’s overnight dip hinted at a cooling labor market and potential rate cuts by the Federal Reserve in September, its steadiness in Asian trading pressured regional currencies amid uncertainty surrounding forthcoming U.S. inflation data.

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Chinese Yuan Falters on Tariff Concerns

The USDCNY pair of the Chinese yuan edged up by 0.1% following reports of potential fresh sanctions by U.S. President Joe Biden on specific Chinese industries, notably electric vehicles and batteries. The economic implications of these tariffs remained uncertain, raising the specter of retaliatory measures from China and exacerbating tensions between the two largest economies.

Other currencies with trade ties to China mirrored the yuan’s decline. The Australian dollar’s AUDUSD pair slipped by 0.2%, while the Singapore dollar’s USDSGD and the South Korean won’s USDKRW pairs registered losses of 0.1% and 0.3%, respectively.

Japanese Yen Under Pressure, USDJPY Approaches 156

Weakness persisted in the Japanese yen this week, with the USDJPY pair clawing back much of its losses incurred after apparent government intervention in currency markets the previous week. The pair rose by 0.2% to 155.73 yen, comfortably above the lows of 152 reached earlier in May. Traders now eyed 160 yen as a potential threshold for Japanese government intervention.

Household spending data for March, released on Friday, exhibited some resilience, potentially bolstering Japanese inflation expectations.

Dollar Steadies, Poised for Weekly Gains Ahead of Inflation Data
The dollar index and dollar index futures experienced marginal gains in Asian trade, recuperating from overnight setbacks. Despite this, the greenback remained up by approximately 0.2% for the week.

Thursday’s dip in the dollar was prompted by a larger-than-anticipated increase in weekly jobless claims, reinforcing expectations of a cooling labor market and potential Fed interest rate cuts by September. However, persistent concerns over inflation prompted scrutiny of upcoming consumer price index data, slated for release next week, for further guidance on interest rate trajectories.

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