Tom Westbrook
SINGAPORE (Reuters) – Asian currencies firmed against the dollar on Thursday, hurt by lower-than-expected U.S. inflation, except for the yen, which remained squeezed ahead of a Bank of Japan meeting and U.S. policymakers signaled that Maintain high interest rates for a long time.
The euro rose 0.6% overnight, breaking above its 200-day moving average and was last bought at $1.0811. USD/USD was up 0.9% at $0.6662 and NZD/USD jumped to a five-month high above $0.62 before settling at $0.6183. The yen gained, but only by about 0.2%.
The U.S. inflation report showed that consumer prices were flat month-on-month in May, while market expectations were for a 0.1% increase, a relatively large increase.
The rate cuts were trimmed when the Fed kept the funds rate unchanged at 5.25-5.5% and policymakers’ median forecast for the number of rate cuts this year dropped to one from three in March.
Sterling rose 0.5% to $1.2798 overnight. Asian trade was muted in early trade, but beaten down currencies such as the Indonesian rupiah could see some relief.
Despite the Fed’s forecasts, the market is still pricing in nearly two 25 basis point rate cuts this year.
“I think the market thinks the dollar is getting weaker and is moving between them,” said Imre Speizer, a strategist at Westpac Banking Corporation in Auckland. “That’s (mainly) due to the Fed rate cuts, which are still coming this year.” In pricing.”
Offshore trading was steady at 7.2627 in early trading, with the dollar slightly higher overnight.
Federal Reserve Chairman Jerome Powell struck a familiar tone at the press conference, stressing that policymakers will be sensitive to economic data. While cuts are expected to be smaller this year, policymakers expect cuts in 2025 or 2026.
“While the view on rate cuts is more hawkish than (in March), we think the details temper that hawkishness,” said John Velis, Americas macro strategist at Bank of New York, noting that 19 policymakers Eight of them predicted two interest rate cuts this year.
Still, it’s cold comfort for the yen, which is struggling to resist downward momentum with such a wide gap between Japan’s near-zero interest rates and short-term rates well above those in the United States.
The Bank of Japan ends its two-day policy meeting on Friday and is expected to make some kind of announcement or signal that it will scale back its massive bond purchases to allow Japanese yields to rise further.
This leaves the yen vulnerable to disappointment. USD/USD was last trading at 156.82, on the back foot on the crosses, having hit a 17-year low of 97.06 overnight, while GBP/USD hit a 16-year low of 200.91.
“We expect the Bank of Japan to miss expectations that could depress Japanese interest rates and the yen,” said Kristina Clifton, senior currency strategist at Commonwealth Bank of Australia (OTC: ).
“Communications from BOJ officials suggest it wants to take its time to adjust its policy settings again.”
