Asian session review: the US dollar is showing positive dynamics

During today's Asian trading, the US dollar rose moderately against major currencies, as market participants adjusted their positions ahead of the publication of US inflation data, which may affect expectations of easing the Fed's monetary policy.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.14% to 104.87. Yesterday, the index fell by 0.31% on the back of US GDP data, which indicated a sharp slowdown in economic growth in the 1st quarter and revived some hope that the Fed's rate cut would happen sooner rather than later. According to the CME FedWatch Tool, markets see a 12.3% probability of a 25 basis point rate cut at the Fed meeting in July, a 50.4% probability of a rate cut in September, and a 63.3% probability of monetary policy easing in November, with traders pricing in 34 basis points of cuts this year compared with 150 basis points of easing priced in at the start of 2024. However, these expectations may change dramatically after the release of the core personal consumption expenditures price index (PCE), the Fed's preferred inflation indicator. Economists expect the index to rise 0.3% m/m in April after a similar increase in March.

The yen fell 0.1% against the US dollar after jumping 0.5% yesterday as Japan's finance minister repeated warnings about excessive currency moves. The yen was put under some pressure by Japanese inflation data, which increased uncertainty about the timing of the next rate hike by the Bank of Japan. The Statistics Bureau said that in May, Tokyo core CPI grew by 1.9% per annum, accelerating compared to April (+1.6% per annum) and confirming economists' forecasts. But this increase was mainly driven by an increase in electricity bills, which could damage already weak consumption and increase uncertainty about the outlook for Japan's economy. The data also showed that a separate index that excludes the effect of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 1.7% per annum after a 1.8% gain in April.

The Chinese yuan fell 0.16% against the US dollar on the back of weaker-than-expected Chinese PMI data. The report showed that the manufacturing PMI fell to 49.5 in May from 50.4 in April. A reading below 50 points indicates a reduction in activity in the sector. Economists had expected the index to rise to 50.5. Meanwhile, the non-manufacturing PMI was 51.1 compared to 51.2 in April. Consensus estimates suggested an increase to 51.5. The composite PMI was 51.0 versus forecasts for 51.4 and down from 51.7 a month earlier.