Investing.com– Most Asian currencies moved little on Friday as the dollar steadied from overnight declines, with focus turning squarely towards key U.S. inflation data due next week, which is likely to provide more cues on interest rates.

The Chinese yuan declined, as did currencies with trade exposure to China after multiple reports said that the U.S. was preparing more trade tariffs on Beijing. 

Regional currencies took little support from an overnight decline in the dollar, as more signs of a cooling labor market reinforced bets that the Federal Reserve will cut rates in September. 

But the dollar steadied in Asian trade, pressuring regional currencies as uncertainty ahead of key U.S. inflation data next week kept traders largely biased towards the greenback. 

Chinese yuan weakens, USDCNY up on tariff reports 

The Chinese yuan’s pair rose 0.1% as multiple reports said U.S. President Joe Biden was considering imposing fresh sanctions on certain Chinese industries, such as electric vehicles and batteries. 

While the economic impact of the tariffs was unclear, such measures could attract retaliation from China, further souring ties between the world’s two biggest economies. 

Other currencies with trade exposure to China fell tracking this notion. The Australian dollar’s pair fell 0.2%, while the Singapore dollar’s and the South Korean won’s pairs lost 0.1% and 0.3%, respectively. 

Japanese yen remains fragile, USDJPY nears 156

Weakness in the Japanese yen persisted this week, as the pair recouped a bulk of its losses made after the government seemingly intervened in currency markets last week.

The USDJPY pair rose 0.2% to 155.73 yen, trading well above lows of 152 it had hit earlier in May. Traders now saw 160 yen as the new line in the sand for Japanese government intervention.

Household spending data for March, released earlier on Friday, showed some resilience- a trend that could potentially underpin Japanese inflation expectations. 

Dollar steadies, set for weekly gains ahead of inflation data 

The and rose slightly in Asian trade, recovering a measure of overnight losses. But the greenback was still trading up about 0.2% for the week.

The greenback fell on Thursday after data showed a bigger-than-expected increase in weekly , furthering expectations of a cooling U.S. labor market.

This reinforced some expectations that the Fed will begin cutting interest rates by September. 

But sticky inflation remained a key point of contention for the Fed, with a slew of officials warning as much this week.

Their comments put upcoming data, due next week, squarely in focus for more cues on interest rates.

By Chuck Mikolajczak

NEW YORK (Reuters) -The dollar weakened against most currencies on Thursday after economic data showed more signs of softening in the U.S. labor market, while the pound rebounded from earlier lows after the Bank of England opened the door for an interest rate cut.

Weekly initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 231,000, the highest level since the end of last August and above the 215,000 expected by economists in a Reuters poll.

The data followed last week’s weaker-than-anticipated U.S. payrolls report and other data that showed job openings fell to a three-year low in March.

Market participants have looked towards a softening labor market as a sign that consumers will begin to slow spending and in turn help cool inflation. Data next week will include readings on consumer prices (CPI), producer prices (PPI) and retail sales.

“We did have a knee-jerk reaction in yields and the dollar lower this morning after the jobless claims number came in above expectations,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

Schamotta said there were some seasonal distortions in the claims report that may have led to the higher reading, but added that recent economic data “kind of suggests that we’re seeing a deceleration in the world’s largest economy, and if we do see a sequential decline in U.S. consumer/producer price indices next week as well as the retail sales number, then that could prick that U.S. exceptionalism trade that’s been dominating markets for quite a long time.”

The greenback showed little reaction to comments from Federal Reserve Bank of San Francisco President Mary Daly, who said she still sees a “really healthy” labor market and inflation that remains too high.

The , which measures the greenback against a basket of currencies, fell 0.22% at 105.28, with the euro up 0.28% at $1.0775.

Sterling strengthened in the wake of the U.S. data and was last at 0.18% at $1.2518. The pound had dropped to a low of $1.2446, its weakest level since April 24, after the Bank of England (BoE) paved the way for an interest rate cut.

The BoE’s Monetary Policy Committee had voted 7-2 to keep the central bank’s key policy rate at a 16-year high of 5.25%, with Deputy Governor Dave Ramsden joining Swati Dhingra in voting for a cut to 5%. BoE Governor Andrew Bailey said it was possible the central bank would need to cut rates by more than investors expect.

Against the Japanese yen the dollar edged 0.03% higher at 155.52 as hawkish opinions from Bank of Japan members helped slow the yen’s fall. The dollar has been slowly recovering against the Japanese currency after it tumbled 3.4% last week, its biggest weekly percentage drop since early December 2022.

The yen had earlier strengthened to 155.15 per dollar, after the BOJ’s summary of opinions showed board members were overwhelmingly hawkish at their April policy meeting, with many citing the need for steady interest rate hikes.

BOJ Governor Kazuo Ueda said the central bank will scrutinize the yen’s recent declines in guiding monetary policy.

Market participants suspect Tokyo spent some $60 billion last week to stall the yen’s slide after it hit its weakest level in 34-years against the dollar around 160 yen.

In a note on Thursday, Deutsche Bank’s head of FX research, George Saravelos, reiterated that “as long as the BOJ sees no urgency to rapidly normalize policy, the fundamental backdrop for the JPY (yen) will not change.”

Investing.com – The U.S. dollar steadied Friday after losing ground the previous session on weak jobs data, while the pound gained in the wake of stronger-than-expected growth numbers.

At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded just higher at 105.115.

Dollar on track for small gains this week

The dollar steadied Friday, and is course for minor gains this week after losses on Thursday following the release of data showed a bigger-than-expected increase in weekly j.

This evidence of a cooling U.S. labor market reinforced some expectations that the will begin cutting interest rates by September. 

However, sticky inflation remains a key point of contention for the Fed, with a slew of officials warning as much this week, comments which boosted the dollar this week.

There is “considerable” uncertainty about where U.S. inflation will head in coming months, San Francisco Federal Reserve President Mary Daly said on Thursday.

“In a scenario where inflation stays … level, just doesn’t make much further progress, then it’s not appropriate to start adjusting the rate unless we see the labor market faltering,” she added.

These comments put upcoming data, due next week, squarely in focus for more cues on interest rates.

Sterling benefits from strong growth data

In Europe, gained 0.1% to 1.2534, recovering from its lowest level since April 24 on Thursday, after data released earlier Friday showed that Britain’s economy grew by the most in nearly three years in the first quarter of 2024.

U.K. expanded by 0.6% in the three months to March, the strongest growth since the fourth quarter of 2021, as the country’s economy exited the shallow recession it entered in the second half of last year.

On a monthly basis, the grew by 0.4% in March, faster than the 0.1% growth forecast.

The held interest rates at a 16-year high on Thursday, but two of the nine-person Monetary Policy Committee voted for a cut, suggesting that the central bank is moving towards such a reduction.

traded largely unchanged at 1.0783, with a light data calendar providing little impetus.

The has all but promised a rate cut on June 6, but uncertainty exists over how many further cuts the central bank will agree to this year.

Pierre Wunsch, Belgium’s central bank governor, made the case for further moves earlier this week, arguing that staying tight for too long was now a bigger risk than easing too early.

Markets currently price in 70 basis points of rate hikes for this year.

USD/JPY drifts higher

In Asia, rose 0.2% to 155.70, trading well above lows of 152 it had hit earlier in May. 

Traders now see the 160 level as the new line in the sand for Japanese government intervention.

rose 0.1% to 7.2249, with the yuan weakening following reports saying U.S. President Joe Biden was considering imposing fresh sanctions on certain Chinese industries, such as electric vehicles and batteries. 

While the economic impact of the tariffs was unclear, such measures could attract retaliation from China, further souring ties between the world’s two biggest economies.