The dollar index and dollar index futures fell slightly in Asian trade. But the greenback held above 104 against a basket of currencies, as uncertainty over the Fed’s plans to cut interest rates in 2024 drove some flows into the dollar.
Consumer price index data is due later in the day, and is expected to show that inflation eased slightly in November. But traders remained wary of a stickier reading, especially after nonfarm payrolls data released last week beat expectations.
While the Fed is widely expected to hold rates steady on Wednesday, markets grew more uncertain over when the bank could begin trimming rates in 2024. The strong payrolls data saw Fed Fund traders scaling back bets on a March 2024 rate cut.
This spurred some strength in the dollar, and pressured Asian currencies.
The Japanese yen rose 0.4% on Tuesday, but was nursing steep losses from the prior session after media reports showed that the Bank of Japan had no intention of moving away from its ultra-loose policies in the near-term.
While the bank has still signaled some intent to eventually raise interest rates from negative levels, the reports suggested that such a move was likely to be later, rather than sooner.
Data on Tuesday showed a mild pick-up in Japanese producer price inflation in November.
Among other Asian currencies, the Chinese yuan was flat as a series of strong midpoint fixes by the People’s Bank helped the currency weather data showing a sustained disinflationary trend in China.
But this led to a wider gulf between the onshore and offshore yuan. The offshore yuan traded around 7.1875, while the onshore yuan was at 7.1766 to the dollar.
Weak inflation data raised more concerns over a persistent economic slowdown in China, and also dented sentiment towards broader Asian markets. The Australian dollar rose 0.4% on Tuesday after retreating in the prior session on concerns over China.
Reserve Bank of Australia Governor Michele Bullock said the bank will maintain a cautious approach with monetary policy, after warning on potential inflation risks earlier this month.
The South Korean won was flat after retreating in the prior session, while the Singapore dollar and Malaysian ringgit also tread water.
The Indian rupee hovered around record lows before key CPI inflation data from the country due later in the day. The reading comes on the heels of a warning from the Reserve Bank of India that inflation risks remained primed towards the upside, due to high food prices.
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