Asia FX firms with Powell in focus; yen rises as BOJ’s Ueda talks rate hikes

Investing.com-- Most Asian currencies firmed on Friday as a rebound in the dollar cooled before an upcoming address by Federal Reserve Chair Jerome Powell, where he is expected to provide more cues on interest rate cuts.

The Japanese yen was the best performer in Asia, extending a rally seen earlier this week after BOJ Governor Kazuo Ueda struck some hawkish notes during a parliamentary hearing. His comments also saw markets look past somewhat middling inflation data for July.

Broader Asian currencies advanced, but were set for a muted weekly performance as optimism over lower U.S. interest rates was offset by renewed concerns over slowing economic growth.

Japanese yen surges as Ueda says rates too low

The Japanese yen firmed on Friday, with the USDJPY pair falling 0.4%. The pair was set to fall 1.3% this week.

The BOJ’s Ueda said that short-term interest rates were still too low, and needed to be brought up further to hit neutral levels. He also reiterated the bank’s recent messaging that it will raise interest rates further if inflation remains steady.

Ueda’s comments boosted the yen, which has been on a tear since the central bank hiked rates by 15 basis points in late-July. The prospect of higher rates presents more upside for the yen.

But this notion was somewhat offset by mixed consumer price index inflation data for July. While core and headline CPI both rose, a key underlying inflation print, which is closely watched by the BOJ, fell below 2%, sparking doubts over just how much headroom the BOJ has to hike.

Dollar falls with Powell talk on tap

The dollar index and dollar index futures both fell about 0.2% in Asian trade, as a rebound from seven-month lows ran dry.

Focus is now squarely on an address by the Fed’s Powell at the Jackson Hole Symposium later on Friday, where he is expected to provide more cues on interest rates and the economy.

Powell’s address also comes as weak labor data from earlier this week sparked renewed concerns that a cooling jobs market will bring a U.S. recession.

Markets were still split over a 25 or 50 basis point cut in September, CME Fedwatch showed.

Broader Asian currencies drifted higher on Friday and were set for a middling week despite recent losses in the dollar.

The Chinese yuan’s USDCNY pair fell 0.1%, while the Australian dollar’s AUDUSD pair added 0.2%.

The South Korean won’s USDKRW pair fell 0.3%, while the Singapore dollar’s USDSGD pair was flat.

The Indian rupee’s USDINR pair steadied after once again testing levels above 84 rupees earlier in the day.

This article first appeared in Investing.com