Investing.com– Most Asian currencies were trading in low or flat ranges on Thursday, while the dollar gained ground as a sturdy reading on U.S. consumer inflation dashed hopes that the Federal Reserve would cut interest rates by a significant margin.

Weak inflation data from Japan weighed on the yen, pulling the currency further from its strongest levels in eight months. But the yen remained relatively sturdy as hawkish comments from the Bank of Japan continued to flow.

Except for the yen, most regional currencies also posted huge declines over the past week as rising fears of a US recession weighed on risk-on markets.

Dollar sturdy after core CPI beat expectations, dampening interest rate cut bets

Both currencies rose 0.1% in Asian trade, extending gains from Wednesday after August inflation data came in higher than expected.

While the core reading is still low, it suggests inflation may turn out higher than initially expected, which could require smaller rate cuts from the Fed.

Bets that the central bank will cut rates by just 25 basis points at its meeting next week rose sharply after Wednesday’s data, while bets on a 50 basis point cut more than halved.

However, ahead of next week’s Federal Reserve meeting, the focus should be on inflation data due out Thursday evening for more clues on inflation.

The prospect of smaller interest rate cuts does not bode well for Asian markets, given that such a scenario heralds a longer continuation of tight monetary policy in the US.

Japanese Yen Weakens from 8-Month High on Weak PPI

The Japanese yen eased from an eight-month high, with the currency pair up 0.1% to 142.47 yen.

The yen continued its overnight declines after August readings came in weaker than expected.

The lower inflation numbers have raised some questions about how much room the Bank of Japan has to raise interest rates, given that the bank has signaled it will raise rates this year as inflation picks up.

Bank of Japan board member Naoki Tamura said on Thursday the bank must raise interest rates to at least 1% to avoid inflation risks.

Analysts are skeptical of another rate hike after the one in slow July. Data due next week should also provide more clues.

Asian currencies traded in low to flat ranges, weighed down by uncertainty over US interest rates and a lack of local signals.

The Australian dollar rose 0.1%, while the South Korean won and Singapore dollar were unchanged.

The Chinese yuan pair was flat and saw some losses this week as sentiment toward the country was hit by feeble import data. Reports that U.S. lawmakers are preparing more trade restrictions for Beijing also weakened the yuan.

The Indian rupee remained flat and hovered around the 84-rupee level.