Asia FX Takes Little Relief From Post-CPI Risk Rally

By Ambar Warrick

Investing.com– Most Asian currencies fell on Friday and were set to end the week lower as hotter-than-expected U.S. inflation drove up fears of more hawkish interest rate hikes by the Federal Reserve in the coming months.

The fell 0.1%, and was one of the worst performers this week, down 1.5% in its ninth consecutive week of losses. The currency slumped to its weakest level in 32 years on Thursday, crossing the 147 mark to the dollar.

A growing rift between local and U.S. interest rates has weighed heavily on the yen this year, with the Bank of Japan so far remaining reluctant to raise interest rates.

fell 0.1% after data showed rose to its highest level since April 2020, as stimulus measures and holiday spending boosted prices. But inflation contracted in September, reflecting continued weakness in China’s COVID-struck manufacturing sector this year.

Fears of more Chinese COVID lockdowns grew this week amid new outbreaks in financial capital Shanghai. The yuan was set to lose about 1% for the week.

Broader Asian currencies moved little, taking no relief from weakness in the dollar. The was muted near record lows, while the rose 0.4% from a 13-year low.

The greenback fell 0.7% on Thursday, even as data showed that U.S. grew more than expected in September.

While the reading is expected to invite more sharp interest rate hikes by the Federal Reserve, it also saw traders ramping up bets that the worst of the inflationary shocks for the U.S. economy had now passed. This spurred big gains in equity markets and most other risk-driven assets.

The steadied around 112.3 on Friday, as did . But after Thursday’s losses, the greenback was set to lose about 0.4% for the week.

Still, Asian currencies took few cues from Thursday’s risk rally, given that the Fed has signaled it will keep raising interest rates sharply in the near-term. Markets are now pricing in a that the central bank will hike rates by 75 basis points in November.

Bucking the trend on Friday, the rose 0.6% after data showed the country’s in the third quarter, shrugging off headwinds from slowing manufacturing and rising inflation.

The Monetary Authority of Singapore also tightened monetary policy, as it moves to contain inflationary pressures in the country.

Gains in industrial metal prices supported the , which rose 0.6%.

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