Most Asian currencies slipped on Tuesday as investors navigated a mix of diplomatic uncertainty and a resurgent U.S. dollar, while weak Japanese inflation readings added to the market’s caution.
The U.S. dollar firmed after weakening in the previous session, with the Dollar Index rising 0.5% on the day. U.S. Dollar Index futures were also trading about 0.5% higher by 23:20 ET (03:20 GMT).
Geopolitical headlines cloud de-escalation hopes
Market participants had reacted to comments suggesting talks with Iran could lead to a pause in strikes on Iranian energy infrastructure. Those remarks initially weakened the dollar, but the report was contradicted when Iran denied that such negotiations had taken place. The conflicting statements left the outlook for de-escalation unclear and contributed to broad pressure on regional currencies.
Regional moves were notable. The USD/KRW pair jumped around 1%. The USD/INR pair rose 0.4% to 93.54 rupees, remaining below the record high of 94.12 rupees reached in the previous session. The onshore USD/CNY edged about 0.2% higher, and USD/SGD gained roughly 0.3%. The Australian dollar slipped as AUD/USD fell 0.6%. By contrast, USD/JPY moved marginally lower, edging down about 0.1%.
Japan inflation and activity data complicate BOJ picture
Japanese inflation data showed core price growth cooled more than expected, with core inflation falling below the Bank of Japan’s target. At the same time, business activity indicators lost some momentum. The flash manufacturing PMI eased to 51.4 in March from 53.0, signalling slower expansion in the factory sector.
Those softer readings add complexity to the BOJ’s policy calculus, weakening near-term pressure for further tightening. Yet some market commentators still see upside risks to prices when looking beyond the immediate slowdown.
"Still, the Bank of Japan is likely to look through the recent inflation slowdown and focus on upside price risks," ING analysts wrote. "Healthy wage negotiation results and firmer-than-expected PMIs raise the possibility of an April rate hike. Still, the timing could shift, depending on the situation in the Middle East."
Investors will continue to monitor both geopolitical developments and upcoming economic releases for clues on the dollar’s trajectory and the timing of any further central bank moves in Japan.