Asia FX Firms Steady, Dollar Stable as CPI Data Approaches

Most Asian currencies experienced a slight uptick on Thursday, recovering some of their recent losses, while the dollar maintained stability near a seven-week peak ahead of crucial consumer inflation data.

Regional currencies had faced declines over the past week due to increasing uncertainty regarding the pace of future interest rate cuts by the Federal Reserve. However, this trend was partially mitigated by the minutes from the Fed’s September meeting, which showed that policymakers supported the central bank’s recent 50 basis point cut, although they expressed caution regarding future adjustments.

Improved sentiment towards China also contributed to the strength of Asian currencies, as Beijing indicated plans to implement fiscal stimulus measures.

### Dollar Stabilizes as CPI Data Approaches

The dollar index and its futures saw a slight decline during Asian trading but remained near the highs reached earlier in the week. Attention was focused on the consumer price index (CPI) inflation data set to be released later in the day, which could significantly influence the Fed’s interest rate strategy. Analysts anticipate a minor easing in headline CPI inflation, with core CPI expected to show persistence.

Following strong payrolls data from the previous week, traders adjusted their positions, reducing expectations for another 50 basis point rate cut in November. Currently, there’s a 79.5% probability priced in for a 25 basis point cut in November, alongside a 20.5% chance that rates will hold steady.

### Chinese Yuan Strengthens Amid Stimulus Hopes

The Chinese yuan saw a 0.2% decline against the dollar, recovering from some recent losses as traders anticipated new stimulus measures from Beijing aimed at bolstering economic growth. China’s finance ministry announced plans for a briefing on Saturday to discuss fiscal stimulus initiatives, following a series of monetary measures that generally fell short of market expectations.

However, additional stimulus could indicate potential weakness for the yuan, particularly if domestic interest rates decrease further.

While most Asian currencies strengthened on Thursday, they continued to reflect recent declines. The Japanese yen fell 0.1% against the dollar after reaching a two-month high, with stronger-than-expected producer price index data offering little support, as markets speculate that the Bank of Japan may find it challenging to increase interest rates.

The South Korean won rose 0.3%, while the Singapore dollar experienced a slight dip. The Indian rupee remained near record lows, reflecting weakness after the Reserve Bank of India hinted at a shift away from its previously hawkish stance. In contrast, the Australian dollar climbed 0.2%, buoyed by optimism regarding China.