Asia FX dips, dollar steady after hotter-than-expected CPI print

© Reuters.

Investing.com– Most Asian currencies crept lower on Wednesday, while the dollar retained some overnight gains after hotter-than-expected U.S. inflation data kept fears of higher-for-longer interest rates in play.

The Japanese yen was an outlier, however, as it benefited from growing conviction that the Bank of Japan was set to raise interest rates soon. But gains in the yen were still held back by concerns over U.S. rates.

Dollar steady as CPI beats expectations, more econ. cues on tap 

The dollar index and dollar index futures fell slightly in Asian trade, but retained a bulk of their overnight gains after a stronger-than-expected reading on consumer price index inflation.

The reading showed that inflation remained stickier than expected, feeding into concerns that the Federal Reserve will have little impetus to begin trimming interest rates.

Still, markets maintained their bets that the Fed will have enough cause to begin cutting rates by June, with a 25 basis point reduction still on the cards, according to the CME Fedwatch tool.

But the hotter CPI reading potentially sets the stage for a stronger reading on producer price index inflation due later this week. U.S. retail sales data for February is also due on Thursday.

Japanese yen firms amid BOJ rate hike watch

The Japanese yen rose 0.3% on Wednesday, as signs of incoming wage hikes in Japan drummed up expectations for an imminent interest rate hike from the BOJ. 

Media reports showed Toyota Motor (NYSE:TM) Corp (TYO:7203), one of Japan’s biggest employers, had agreed to steep wage hikes with a labor union. Other employers also appeared to have followed suit.

Increased wages, coupled with recent, sticky inflation indicators, give the BOJ more impetus to end its negative interest rates and yield curve control policy. 

Reuters reported that the BOJ was gearing up to signal how it will conduct bond purchases after ending its ultra-dovish policies. 

The BOJ is set to meet next week, and is pipped to either raise interest rates then or during a late-April meeting. Higher rates bode well for the yen, which was battered by rising U.S. rates over the past two years.

Broader Asian currencies moved in a flat-to-low range. The Australian dollar added 0.1%, while the South Korean won and Singapore dollar both tread water.

The Chinese yuan fell 0.1% even as the People’s Bank of China set a stronger-than-expected midpoint. Focus was also on key new loans data from the country, due later in the day. 

The Indian rupee steadied after clocking some losses in overnight trade.