Asian Forex Keeps Cautious as Fed Rate Cut Hopes Shake

The final trading session in Asia saw major currencies trading mostly flat as investors digested a slew of economic data from the US, Japan and China. The yen stood out on the back of strong GDP data, while the US dollar eased slightly from its previous peak.

US: PPI beats forecasts, Fed rate cut hopes falter

The US producer price index (PPI) for July beat expectations, signaling persistent input inflation.

Following the data, the market is all but certain that the Federal Reserve will cut rates in September, but the probability of a 50 basis point cut has diminished significantly.

The US dollar index edged down 0.2% in Asia, after a strong rally overnight.

Japan: Q2 GDP ‘beats expectations’, pushes yen higher

Japan’s economy grew faster than expected as exports and capital spending maintained their resilience.

USD/JPY fell about 0.5%, reflecting a return to the yen on expectations that the Bank of Japan (BOJ) may have to consider tightening policy sooner.

China: Manufacturing and consumption disappoint

Industrial output and retail sales both fell short of forecasts in July, suggesting domestic and export demand were under pressure.

The yuan was largely unchanged, with both the onshore (USD/CNY) and offshore (USD/CNH) rates holding steady.

Other regions: little changed

The Singapore dollar (USD/SGD) fell 0.1%.

The Indian rupee (USD/INR) was flat.

The Australian dollar (AUD/USD) rose 0.2% on slightly improving sentiment.

The Korean won (USD/KRW) weakened 0.1%.

Overall View

Mixed economic data kept the Asian FX market in a wait-and-see mode. The Fed is still expected to cut interest rates next month, but less easing is expected after the stubborn PPI numbers. Meanwhile, Japan emerged as a bright spot in the region, while China continued to send signals of lackluster growth.

👉 The current situation suggests that the USD trend will be closely dependent on the Fed's policy signals, while Asian currencies are likely to fluctuate in a narrow range until there is more clarity on the next move.