Investing.com– Most Asian currencies traded in a narrow range on Friday as the dollar maintained recent gains ahead of key inflation data that is likely to weigh on the outlook for interest rates.

The Japanese yen strengthened, approaching levels seen earlier this month, while powerful inflation data from Tokyo strengthened the case for a hawkish stance by the Bank of Japan.

China’s yuan hit its highest level in 2024 after reports of more positive action from Beijing sparked a broader rebound in local markets.

Most regional currencies continued to head for gains in August as the dollar fell to 13-month lows amid growing confidence that the Federal Reserve will cut interest rates in September. However, that trade cooled modestly this week.

Dollar maintains weekly bounce, PCE data expected

Both stabilised in Asian trade and were poised for their first positive week in five. However, the dollar still fell 2.6% in August, its worst month since November 2023.

The dollar was helped by continued signs of resilience in the U.S. economy, after data released on Thursday showed the economy grew more than initially estimated in the second quarter.

The data — the Fed’s preferred inflation gauge — is due out Friday evening and is also expected to show a slight rise in inflation in July.

A powerful economy and stiff inflation are giving the Fed less impetus to cut rates sharply. While traders were still betting on a September easing, they were more likely to bet on a smaller, 25-basis-point cut, it showed.

Japanese yen strengthens as Tokyo CPI beats expectations

The Japanese yen rose on Friday, with the pair down 0.1% at 144.84 yen. The pair was near lows reached in early August during the peak of pro-yen trading.

showed inflation rose slightly more than expected in August, with core inflation returning to the Bank of Japan’s annual target of 2% on improved private spending.

The reading reinforced the view that rising inflation will give the BOJ more leeway to raise interest rates even further this year. The CPI reading also helped markets look beyond the disappointing data and print.

Chinese Yuan Hits 2024 High on Stimulus Hopes, PBOC Support

The Chinese yuan strengthened on Friday, reaching its lowest level since delayed December.

The yuan, like broader Chinese markets, rose on reports that Beijing plans to refinance $5.4 trillion worth of mortgages, giving a boost to the property market that has been a major cause of China’s economic crisis.

However, a key factor supporting the yuan was a series of decisive mid-rate adjustments by the People’s Bank, which took action to protect the Chinese currency from further losses.

Asian currencies traded in a narrow range as investors were nervous ahead of US inflation data.

The Australian dollar rose 0.1% to near a one-month high. July data came in weaker than expected, marking a slowdown after two months of powerful growth.

The South Korean won rose 0.1%, while the Singapore dollar remained unchanged.

The Indian rupee moved away from the 84-rupee level but still remained close to the record highs seen in early August.