Yen weakens to new lows as BOJ provides little support amid US inflation concerns

Key Takeaways:

• 💵 Most Asian currencies weakened and dollar steadied ahead of key US inflation data
• 🇦🇺 Australian dollar supported by strong inflation data leading to bets on higher rates
• 📊 GDP data showed cooling growth in the US economy in the first quarter amid high inflation rates
• 💱 Despite weak GDP reading, traders are not expecting near-term rate cuts by the Fed until September or the fourth quarter
• 🌏 Broad Asian currencies also weakened due to persistent fears of higher US interest rates
• 🔮 Traders growing wary of volatility in Indian markets as general elections begin in 2024

Asian Currencies Weaken as US Inflation Concerns Rise

Asian currencies, in general, weakened as traders awaited key US inflation data, causing the dollar to steady. This weakening trend was particularly noticeable in the Japanese yen, which underperformed following little support for higher interest rates from the Bank of Japan (BOJ). Despite strong inflation data in Australia leading to bets on higher rates for the Australian dollar, the overall sentiment in the region was cautious due to persistent fears of rising US interest rates.

The GDP data released for the US economy showed cooling growth in the first quarter, coinciding with high inflation rates. However, traders are not expecting near-term rate cuts by the Federal Reserve until later in the year. This cautious market sentiment was further exacerbated by concerns of volatility in Indian markets as the country prepares for general elections in 2024.

The yen’s decline, reaching its weakest level in decades after the BOJ meeting, has drawn attention and caused concern among traders. While the Bank of Japan’s stance and its impact on the yen’s value are closely monitored, the overall landscape of Asian FX markets remains uncertain, with prevailing worries about US inflation expectations influencing trading decisions.