Asia FX muted, dollar sinks ahead of PCE inflation data

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By Ambar Warrick — Most Asian currencies moved little on Friday as the dollar weakened on signs of a softening labor market, with focus now turning squarely to a reading on the Federal Reserve’s preferred inflation gauge later in the day.

Still, most Asian currencies were trading higher for the first quarter of 2023, as fears of a banking crisis decimated the dollar and spurred bets that the will taper its hawkish stance. The greenback was down 1% over the past three months.

Regional currencies took few cues from mixed Chinese business activity data, which showed that while activity grew more than expected, growth in the slowed from the prior month.

grew at its fastest pace in over a decade, but the reading still points to an uneven recovery in the Chinese economy. The trimmed a bulk of its intraday gains after the data, and was trading 0.1% higher.

Other Asian currencies rose slightly on Friday, with the up 0.2%, while the added 0.3%. The won advanced even as data showed that South Korean continued to shrink through February.

The was flat as data showed eased slightly less than expected in March. The reading usually heralds a similar trend in nationwide inflation, which is due later in April.

Other data showed that Japanese and rose sharply in February, although this also coincided with a .

The dollar was nursing steep losses from the overnight session, and moved little in Asian trade. The and rose less than 0.1% each, and were close to a one-month low.

Data released overnight showed that U.S. rose more than expected in the past week, pointing to some cooling in the labor market. The reading spurred some bets that the Federal Reserve will have limited headroom to keep raising interest rates, especially in the face of a potential banking crisis.

Focus is now on data – the Fed’s preferred inflation gauge – due later in the day. Any sign that inflation eased further in February is likely to further trim expectations of more interest rate hikes, denting the dollar and boosting demand for Asian currencies.

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