Asian Currencies Hold Steady as Strong U.S. Inflation Data Boosts Dollar

Asian currencies traded mostly flat on Wednesday after posting strong gains in the previous session, as higher-than-expected U.S. inflation data strengthened the U.S. dollar and pushed Treasury yields higher. Investors also reduced expectations for Federal Reserve interest rate cuts, increasing pressure on regional currencies.

The U.S. Dollar Index remained near a one-week high during Asian trading hours after climbing 0.4% on Tuesday. Market sentiment shifted after fresh data showed U.S. consumer prices rose 3.8% year-over-year in April, marking the fastest pace of inflation since May 2023. The reading came in above analyst forecasts, reinforcing concerns that the Federal Reserve could maintain elevated interest rates for a longer period.

Following the inflation report, traders largely ruled out the possibility of a Fed rate cut in 2026, while expectations for another rate hike increased slightly. Rising Treasury yields also supported the dollar’s strength against major Asian currencies.

The Japanese yen weakened slightly, with the USD/JPY pair rising 0.1% after gaining 0.3% in the previous session. The South Korean won also stabilized after a sharp rally, while the Indian rupee hovered near record lows against the dollar after USD/INR touched 95.7375 in the prior session.

Meanwhile, the Singapore dollar and Australian dollar traded in narrow ranges as investors remained cautious ahead of key geopolitical developments.

The Chinese yuan stayed near a three-year low against the dollar, although it continued to outperform several regional peers. Investors are closely monitoring talks between former U.S. President Donald Trump and Chinese President Xi Jinping in Beijing from May 13 to May 15. Discussions are expected to focus on trade relations, tariffs, artificial intelligence, rare earth exports, and the ongoing Iran conflict.

Global market sentiment also remained fragile due to escalating Middle East tensions. Concerns over disruptions in oil shipments through the Strait of Hormuz kept crude oil prices above $100 per barrel, adding to inflation worries worldwide and further supporting the U.S. dollar.