On Thursday, there was a decline in most Asian currencies, while the US dollar remained steady in light of the hawkish comments from a number of officials of the Federal Reserve.
The focus of the market has now turned towards the upcoming inflation data from the United States and China because it would provide cues on the performance of the global economy.
Currency movements
The biggest declines were recorded in risk-heavy Southeast Asian currencies for the day, with the Indonesian rupiah and the Thai baht losing about 0.2% each.
There was not a lot of movement in the Japanese yen against the US dollar, as investors opted to stay on the sidelines ahead of the unveiling of potential candidates for the new Bank of Japan (BOJ) governor role.
There was a drop in broader Asian currencies as Fed officials rekindled fears about more interest rate hikes in the US this week.
Meanwhile, the US dollar remained steady against a basket of its peers, as the dollar index and the dollar index futures were trading flat for the day.
A sharp increase in the interest rate in the previous year had left regional currencies battered, with traders fearful of a similar trend this year as well.
Inflation
Overnight, John William, the President of the New York Fed, and Christopher Waller, the Fed Governor, said that the strong job market indicated inflation would remain high in the next few months.
Therefore, they said that more interest rate hikes could be expected. Fed chair Jerome Powell then added to it by saying that they could raise interest rates higher, even in light of easing inflation.
Markets are now awaiting the consumer price index (CPI) data in the US in the next week, which would dictate the path of the monetary policy in the next few months.
Rising interest rates in the US are not a good thing for Asian currencies because of the narrowing gap between risky and low-risk yields.
Other factors
The focus was also on local inflation readings. On Thursday, there was little movement in the Chinese yuan, with the CPI data due on Friday.
Markets will be closely watching the numbers to see if there has been any economic recovery in the country after they relaxed most of the COVID-19 curbs that had been implemented.
One of the few currencies that recorded gains for the day was the Indian rupee, which was able to extend some of the smaller gains seen in the previous session.
This was after the Reserve Bank of India (RBI) delivered an interest rate hike and took the markets by surprise when it said that there could be more hikes to come.
It ducked expectations of pausing its monetary tightening cycle. Investors will also be keeping an eye out for the CPI data in India due in the next week.
This would give an idea of whether there was a reduction in price pressures in the previous month and what steps the Indian central bank would take in the future.