Asia FX Firms Steady as Dollar Prepares for Powell and Inflation Signals

Most Asian currencies gained strength on Thursday, with the dollar settling ahead of anticipated guidance on interest rates, particularly from an address by Federal Reserve Chair Jerome Powell later in the day.

The Chinese yuan continued its upward trend after reaching a 16-month high, as traders responded positively to newly announced stimulus measures from Beijing earlier this week. This optimism regarding China’s economic prospects also bolstered other regional currencies.

In contrast, the Japanese yen lagged behind, extending its losses as sentiment toward Japan weakened ahead of the 2024 Liberal Democratic Party presidential election on Friday, which will play a significant role in determining the nation’s next Prime Minister.

During Asian trading, the dollar showed signs of stabilization after a significant rebound the previous day, recovering some losses incurred over the last week following a notable interest rate cut by the Federal Reserve.

### Dollar Steadies Ahead of Powell’s Speech

Both the dollar index and dollar index futures settled in Asian trading after a sharp rebound on Wednesday. The greenback managed to regain some ground lost over the past week, following the Fed’s decision to cut interest rates by 50 basis points and initiate an easing cycle.

This week, attention is sharply focused on further signals from the Federal Reserve, with numerous policymakers scheduled to speak in the upcoming days. Chair Jerome Powell is slated to address the public later today.

Additionally, the PCE price index data—considered the Fed’s preferred inflation measure—is set to be released on Friday and will likely influence the central bank’s future actions. Before that, a revised reading of second quarter GDP and weekly jobless claims data are expected on Thursday.

### Chinese Yuan Strengthens Amid Stimulus Support

The yuan’s pair with the dollar fell 0.2% on Thursday, maintaining its position as the lowest level since May 2023. The currency experienced significant gains following the announcement of various major stimulus measures by Beijing aimed at supporting economic growth. The People’s Bank of China has reduced bank reserve requirements and lowered mortgage rates.

These actions have enhanced confidence in a potential recovery of the Chinese economy, leading to an increase in the yuan’s value, though more relaxed monetary conditions may cap its recovery.

This optimism surrounding China has also positively impacted other Asian currencies, with the Australian dollar rising 0.3%. Meanwhile, the South Korean won and Singapore dollar both reported declines of 0.3% and 0.2%, respectively. The Indian rupee saw a slight increase after a positive performance on Wednesday.

The Japanese yen saw a rise of 0.1% against the dollar, moving further from its 2024 lows as uncertainty around Japan’s political landscape persisted ahead of the LDP elections on Friday, which will be pivotal in determining future leadership. Analysts predict that a change in leadership in Japan may hinder the Bank of Japan’s plans to raise interest rates in the near future.