Investing.com– Most Asian currencies rose on Thursday as the dollar fell after comments from Federal Reserve Chairman Jerome Powell sparked greater optimism about interest rate cuts, putting upcoming inflation data in focus.

Regional currencies regained some ground against the dollar as investors largely maintained bets on a September Fed rate cut. Thursday’s consumer price index inflation report is expected to provide more clues on that.

However, tender economic data meant that the Japanese yen continued to lag behind its peers, with the currency remaining close to its weakest level in 38 years.

Dollar retreats as CPI data in focus

Both fell about 0.1% in Asian trading, extending overnight losses after Powell repeated his forecast that the U.S. economy would achieve a cushioned landing.

A key point of pressure on the dollar was Powell’s statement that the Fed does not need to see inflation below its 2% target to start cutting interest rates, but needs to be certain that inflation is falling.

This has made the upcoming data particularly essential, with any signs of lower inflation likely to spur speculation about a rate cut.

It showed that investors maintain a 72.5% probability that the Fed will cut interest rates by 25 basis points in September.

Japanese Yen Weak, USDJPY Holds Above 161

The Japanese yen continued to lag behind its peers, finding little relief even as the dollar retreated and the outlook for U.S. interest rates improved. The pair held well above 161 yen and hovered close to levels last seen in 1986.

Weak machinery orders data in May underscores the continued weakness of the Japanese economy, reinforcing the view that the Bank of Japan will have constrained room to manoeuvre in raising interest rates further.

Still, the threat of potential government intervention in currency markets kept the yen’s decline relatively miniature.

Broader Asian sector currencies strengthened on the prospect of a possible US interest rate cut.

The Australian dollar rose 0.2% despite data on inflation expectations in Australia falling slightly.

The Chinese yuan fell 0.1%, with the Chinese currency seeing some relief after disappointing inflation data released on Wednesday.

The South Korean won fell 0.3% after the Bank of Korea held its 12th consecutive meeting. However, some policymakers raised the prospect of an interest rate cut in the next three months.

The Singapore dollar fell 0.1%, while the Indian rupee was little changed.