On Friday, most Asian currencies remained relatively stable as the dollar weakened due to indications of a softening labor market. Investors are now eagerly anticipating the Federal Reserve’s preferred inflation gauge, which is due to be released later in the day.
Despite mixed Chinese business activity data, most Asian currencies rose during the first quarter of 2023, fueled by fears of a banking crisis that eroded the value of the dollar and prompted speculation that the Federal Reserve would abandon its hawkish stance. The greenback has fallen by 1% over the past three months.
Chinese business activity data indicated that while the service sector grew more than expected, growth in the manufacturing sector slowed compared to the prior month, pointing to an uneven recovery in the Chinese economy. The yuan experienced a slight uptick, rising by 0.1% and then retreating after the data was released.
On Friday, other Asian currencies also experienced slight gains, with the South Korean won increasing by 0.2% and the Malaysian ringgit rising by 0.3%. The won remained steady despite data indicating that South Korean industrial production continued to decline through February.
The Japanese yen remained unchanged, and data showed that inflation in Tokyo eased slightly less than anticipated in March. This reading often indicates a similar pattern in nationwide inflation, which is expected to be released later in April. In February, Japanese industrial production and retail sales surged, but this was accompanied by an increase in unemployment.
The dollar remained largely unchanged in Asian trade, having suffered significant losses in the overnight session. The dollar index and dollar index futures each rose by less than 0.1%, hovering near a one-month low.
U.S. jobless claims released overnight exceeded expectations, indicating some cooling in the labor market. This prompted some investors to speculate that the Federal Reserve would have limited leeway to continue raising interest rates, particularly in the face of a potential banking crisis.
Investor attention is now focused on the personal consumption expenditures data, which is the Federal Reserve’s preferred inflation gauge, set to be released later in the day. If there are any indications that inflation has further decreased in February, it is likely to dampen expectations of additional interest rate hikes, causing the dollar to decline and boosting demand for Asian currencies.