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Asia FX Largely Muted as Dollar Stabilizes Ahead of Inflation Data; Yen Remains Fragile

Most Asian currencies showed little movement on Tuesday, mirroring the stability of the dollar as traders awaited upcoming U.S. inflation reports that are expected to influence interest rate expectations.

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Attention also remained on the Japanese yen, with its persistent weakness prompting concerns about potential government intervention.

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Many regional currencies were recovering from recent losses against the dollar, reflecting a prevailing bias towards the greenback amid anticipation of further cues regarding U.S. interest rates.

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Japanese Yen Draws Attention Amid USDJPY Movement

The Japanese yen’s USDJPY pair, an inverse indicator of the currency’s strength, edged up 0.1% on Tuesday, trading comfortably above the 156 yen mark. This movement follows a partial recovery from losses incurred earlier in May, during which the government intervened in currency markets twice. Despite the threat of intervention, the rapid rise of USDJPY beyond the 160 yen threshold raised concerns about possible preemptive government action.

Japanese producer price index data for April suggested subdued factory inflation, indicating minimal pressure on the Bank of Japan to tighten monetary policy.

Chinese Yuan Slips Amid Property Market Concerns

The Chinese yuan’s USDCNY pair dipped 0.1% amid apprehension surrounding the Chinese property market. News of another major property developer, Agile Group Holdings Ltd (HK:3383), defaulting on bond payments dampened sentiment despite positive indicators such as improving inflation and Beijing’s announcement of a significant bond issuance.

The ongoing downturn in the property sector continues to strain the Chinese economy, despite government efforts to bolster the industry. Some major Chinese cities have recently eased restrictions on home purchases in attempts to stimulate activity.

Dollar Holds Steady Ahead of Inflation Data

The dollar index and dollar index futures saw marginal gains in Asian trading as investors maintained a preference for the greenback in anticipation of upcoming inflation figures.

Producer price index (PPI) data is scheduled for release later on Tuesday, followed by the more closely-watched consumer price index (CPI) reading on Wednesday. These reports are expected to influence U.S. interest rate expectations, with persistent inflation posing challenges for Asian currencies.

Most regional currencies exhibited subdued movements on Tuesday, with the Australian dollar’s AUDUSD pair slipping 0.1%, while the South Korean won’s USDKRW and the Singapore dollar’s USDSGD rose 0.2% and 0.1%, respectively.

The Indian rupee’s USDINR pair remained near record highs following Monday’s data indicating steady Indian CPI inflation in April.

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