Asian currencies were largely steady after posting strong gains in the previous session, as elevated US inflation data pushed traders to scale back expectations for Federal Reserve interest rate cuts, strengthening the dollar and lifting US Treasury yields.
The US dollar index held near its highest level in a week after rising 0.4% in the previous session, following data showing that US consumer prices increased 3.8% year on year in April, the highest rate since May 2023 and above market expectations. This reinforced concerns that the Federal Reserve may keep interest rates elevated for longer.
As a result, market bets on any rate cut this year declined, while expectations for a possible further rate hike rose slightly.
USD/JPY edged higher after gains in the previous session, while the South Korean won stabilized after a strong jump. The Indian rupee also held near record lows against the dollar, while the Singapore dollar and Australian dollar remained broadly unchanged.
Meanwhile, the Chinese yuan traded near three year lows, despite recently outperforming most regional currencies.
Investors are awaiting US President Donald Trump’s meeting with Chinese President Xi Jinping in Beijing, with talks expected to focus on trade, artificial intelligence, tariffs, rare earth exports, and developments in the conflict with Iran.
Global market sentiment remains under pressure from ongoing tensions in the Middle East, after hopes for progress in US Iran negotiations faded following Trump’s comments that the ceasefire proposal was on “life support,” while criticizing Tehran’s demands.
The conflict also continues to affect oil flows through the Strait of Hormuz, keeping crude prices above $100 per barrel and adding to global inflationary pressures.
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