Investing.com: Most Asian currencies fell and posted significant losses against the dollar on Friday as hawkish signals on inflation and interest rates made investors further price in expectations for rate cuts in 2024.

Sentiment toward Asian markets was also hit by signs of a resurgent U.S.-China trade war, while the People’s Liberation Army held extended military exercises near Taiwan, heightening tensions with Taipei.

The dollar is at its highest level in 10 days after easing bets in September

However, the biggest source of pressure on Asian currencies was the dollar’s rebound, which stabilized at 10-day highs on Friday.

Federal Reserve meeting minutes in behind schedule April, combined with some hawkish comments from Fed officials, showed investors have become more wary of sticky inflation, which in turn could delay any plans the central bank has to start cutting interest rates.

This resulted in investors largely pricing in expectations for an interest rate cut in September.

It was shown that investors estimated in September an almost equal probability of a cut and a continuation – around 46%. Previous expectations showed over 50% chance of a reduction.

The Japanese yen is weakening, pliable CPI does not bring relief

The Japanese yen pair rose 0.1% on Friday to its highest level in more than three weeks, extending a rebound from lows reached immediately after government intervention in early May.

The yen eased slightly after data showed inflation fell as expected in April amid continued low spending. The reading raised more questions about how much room the Bank of Japan has to tighten policy further, creating more headwinds for the yen.

Chinese yuan losses circumscribed by stronger PBOC correction

The Chinese yuan pair rose 0.05% on Friday, with further yuan weakness capped by much stronger midpoint strengthening from the People’s Bank of China.

The stronger recovery came as a simmering trade war with the U.S., doubts about more stimulus measures and heightened tensions with Taiwan triggered a wave of yuan selling pressure.

The USDCNY pair was close to a six-month high.

Broader Asian currencies retreated. The South Korean won pair rose 0.3%%, while the Singapore dollar pair rose 0.1%.

The Australian dollar pair fell by 0.2%. Most regional currencies headed for edged weekly losses as the prospect of high longer-term U.S. interest rates created more pressure.