Investing.com– Most Asian currencies moved little on Tuesday, tracking a steady dollar as traders remained largely focused on upcoming U.S. inflation readings that are likely to factor into the outlook for interest rates.

The Japanese yen was also a point of focus, as sustained weakness in the currency put traders on guard over any more potential intervention by the government. 

Most regional currencies were nursing recent losses against the dollar, as traders remained largely biased towards the greenback ahead of more cues on U.S. interest rates.

Japanese yen on intervention watch as USDJPY crosses 156

The yen’s pair, which is inversely representative of strength in the currency, rose 0.1% on Tuesday and was trading well above 156 yen. 

The pair had recouped a bulk of its losses made earlier in May, when the government was seen intervening in currency markets on two separate occasions. 

While traders now saw 160 yen as the new line in the sand for government intervention, USDJPY’s rapid ascent, despite the threat of intervention, sparked fears that the government may intervene sooner. 

Japanese data showed factory inflation remained largely subdued in April, pointing to little inflationary pressure on the Bank of Japan to keep tightening policy.

Chinese yuan inches lower on property market jitters 

The Chinese yuan’s pair rose 0.1%, as sentiment towards China soured after another major property developer- in this case Agile Group Holdings Ltd (HK:)- defaulted on its bond payments.

The default largely offset some optimism over improving inflation in China, as well as Beijing’s recent unveiling of plans for its massive, 1 trillion yuan ($138 billion) bond issuance.

A prolonged slump in the property market has been a key point of pressure on the Chinese economy, despite repeated efforts from Beijing to support the sector. A slew of major Chinese cities had relaxed restrictions on home buying in the past two weeks. 

Dollar steady with PPI, CPI data on tap 

The and rose slightly in Asian trade, as traders remained biased to the greenback ahead of inflation readings in the coming days.

data is due later on Tuesday, while the more closely-watched reading is due later on Wednesday. Both readings are likely to factor into the outlook for U.S. interest rates, with any signs of sticky U.S. inflation presenting more headwinds for Asian currencies. 

Most regional units were muted on Tuesday. The Australian dollar’s pair fell 0.1%, while the South Korean won’s and the Singapore dollar’s rose 0.2% and 0.1%, respectively. 

The Indian rupee’s pair remained close to record highs as data on Monday showed Indian remained steady in April. 

Investing.com – The U.S. dollar drifted marginally lower Monday, consolidating after recent swings as the focus turned squarely to upcoming U.S. inflation data for more cues on interest rates. 

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded just 0.1% lower to 105.090, after a weekly gain last week after two successive weeks of decline.

Dollar awaits key inflation data

The dollar saw wild swings last week as mixed U.S. economic readings sparked questions over just when the central bank will begin cutting interest rates this year. 

However, this volatility is likely to retreat at the start of this new week as traders await the release of the latest U.S. inflation data, which will likely dictate near-term sentiment regarding potential rate cuts.

Analysts expect Wednesday’s crucial report to show underlying inflation rising 3.6% on a year-over-year basis, which would be the smallest increase in over three years.

But a hotter-than-expected inflation reading would likely price out rate cuts for the rest of the year, likely boosting the greenback.

“After the dovish FOMC meeting and the soft April NFP sucked the momentum from the dollar’s upside, the question is whether price data can actively contribute to the dollar’s downside,” analysts at ING said, in a note.

Investors will get some fresh insights into the health of the U.S. consumer this week with April data on Wednesday, plus earnings results from major retailers Walmart (NYSE:) and Home Depot (NYSE:).

Sterling benefits from strong growth data

In Europe, gained 0.1% to 1.2531, retaining some strength after data showed last week that Britain’s economy grew by the most in nearly three years in the first quarter of 2024.

“Sterling continues to witness a stop-start sell-off, where Friday’s release of a stronger-than-expected first quarter GDP figure for 2024 managed to give sterling some support,” ING added. 

“We doubt this better-than-expected reading has too much impact on Bank of England thinking – beyond perhaps giving it some room for patience on policy. And we retain our downside bias for sterling over the coming quarters.” 

traded 0.1% higher to 1.0784, although this firmer tone could be short-lived with the European Central Bank all but promising a rate cut on June 6.

Eurozone inflation remains on track to fall back to 2% next year, so policymakers will likely start cutting interest rates from a record high in June, the account of their April meeting showed on Friday.

Markets now see up to three rate cuts this year, or two beyond June, most likely in September and December, when the ECB also publishes new economic projections.

Yuan falls to two-year low

In Asia, rose 0.1% to 7.2339, hitting a two-week high after data released over the weekend offered mixed cues on Chinese inflation.

inflation rose more than expected in April, as persistent stimulus measures from Beijing helped buoy demand. But inflation shrank for a 19th consecutive month, as Chinese business activity remained laggard.

Traders were also wary of China after reports last week said the Biden administration was preparing more trade tariffs against the country, especially on China’s electric vehicle sector. The move could reignite a trade war between the world’s largest economies. 

rose 0.1% to 155.87, hovering just below the 156 level.

The focus remained on any more potential government intervention to support the currency, following at least two instances of intervention earlier in May. The government was seen stepping in to bring down the USD/JPY pair from 34-year highs above 160.

Investing.com – The U.S. dollar usually enjoys the month of May, according to analysis from UBS, but this year seems to be different.

“May has historically been a positive month for the dollar: our seasonality indicator suggests that the bid for USD usually picks up in late April and culminates around the middle of May, with EUR, AUD and NZD typically the most impacted,” analysts at the Swiss bank said, in a note dated May 13.

However, the dollar has seen little seasonal boost so far, UBS said, which intuitively aligns with a lack of ‘sell in May’ tendency in equities thus far. 

While benign corporate earnings and a dovish FOMC shift have likely been the main explanation, we also observe that negative May equity returns have actually become less prevalent in the last 10 years, with only 2019 being negative. 

“More specifically for FX, this is also an indication that the market might already be long USD for positive carry and as a defensive hedge,” UBS added. “This prevents the type of disruptive and USD-positive risk unwinds that may have taken place in past episodes, when the dollar was more of a risk funder.”