Asia FX dips as China inflation disappoints, dollar flat on mixed CPI

Investing.com — Most Asian currencies retreated on Thursday as softer-than-expected Chinese data raised more concerns over slowing growth in the region’s largest economy, while the dollar was flat following a mixed consumer inflation reading.

The fell to a two-month low after data showed Chinese barely grew in April, while sank to its weakest level since the peak of the COVID-19 pandemic in 2020.

Thursday’s reading, coupled with disappointing earlier this week, showed that economic activity in China was struggling to pick up despite stimulus measures and a post-COVID reopening.

This trend bodes poorly for other Asian currencies that have high trade exposure to China, as an economic recovery in the country cools. The fell 0.4% after the reading, while the lost 0.2%.

The was flat on Thursday after rising sharply in overnight trade after a mixed reading on data.

This saw the dollar lose some ground in overnight trade, although the greenback was largely flat on Thursday amid uncertainty over the path of U.S. monetary policy.

The and moved less than 0.1% in either direction.

U.S. consumer price index data showed that inflation eased slightly in April, but still remained well above the Federal Reserve’s target range. But inflation continued to , showing that U.S. interest rates were likely to remain higher for longer.

While markets are widely betting that the Fed is done with its rate hike cycle this year, showed that markets trimmed their expectations for a rate cut this year, following the CPI data.

Higher U.S. interest rates bode poorly for Asian currencies, as the gap between risky and low-risk yields narrows. This trend battered Asian currencies through 2022, and is likely to limit a recovery this year.

But a few Asian units still saw some support on Thursday. The rose slightly, amid continued expectations of more interest rate hikes by the Reserve Bank. Relative strength in the jobs market gives the enough headroom to keep raising rates, as it battles runaway inflation.

The was also supported by better-than-expected for the first quarter of 2023, indicating that high inflation and interest rates had a limited impact on economic growth.

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