Dollar Achieves Record Peak

Asian currencies experienced a decline on Thursday, influenced by stronger-than-anticipated U.S. inflation data propelling the dollar to a five-month peak. This surge, alongside a weakened Japanese yen, raised concerns about potential intervention in the market.

Traders swiftly adjusted their positions, abandoning expectations for a Federal Reserve interest rate cut in June. This shift added immediate pressure to Asian currency markets. Moreover, subdued inflation figures from China exacerbated sentiment, as deflationary tendencies persisted in the region’s largest economy.

The dollar’s ascent was primarily driven by March’s Consumer Price Index surpassing expectations, suggesting persistently high inflation above the Fed’s 2% target. Coupled with the Fed’s March meeting minutes, which hinted at a hawkish stance, the likelihood of a June rate cut diminished. Fed officials had repeatedly cautioned about persistent inflation delaying any potential rate adjustments.

The prospect of prolonged high U.S. interest rates spells further strength for the dollar, posing challenges for high-risk Asian currencies with high yields.

While the Japanese yen saw marginal strengthening on Thursday, it stabilized around 152.86 against the dollar after breaching the 153 mark overnight, reaching its highest level since 1990. However, expectations of currency market intervention by the Japanese government curbed further gains, with key finance officials issuing warnings, notably Vice Finance Minister Masato Kanda, known for leading intervention efforts in 2022 during similar USDJPY levels.

Meanwhile, the Chinese yuan remained relatively stable, though the USDCNY pair lingered near five-month highs. Despite this, the People’s Bank’s robust midpoint fix tempered further USDCNY appreciation. Weaker-than-expected Chinese CPI inflation for March and prolonged contraction in the Producer Price Index reflected sustained deflationary pressures in Asia’s largest economy.

Other Asian currencies largely traded within a flat-to-lower range. The Australian dollar’s AUDUSD pair rebounded slightly after substantial overnight losses, while the South Korean won’s USDKRW pair stabilized following an overnight surge. The Singapore dollar’s USDSGD pair experienced a marginal decrease, and the Indian rupee’s USDINR pair hovered near record highs above 83.