Most Asian currencies moved within narrow ranges during today’s trading, while the US dollar held steady near its recent gains, as markets continued to assess the impact of new US strikes on Iran and stronger than expected US inflation data on the Federal Reserve’s monetary policy path.
The dollar index stabilized near the 100 level, remaining close to its highest levels in two months, supported by growing market conviction that the Federal Reserve may keep monetary policy tight for longer and could possibly move toward another rate hike before the end of the year if inflationary pressures persist.
In Asia, risk appetite remained weak after US forces carried out additional strikes on Iranian targets, followed by Tehran’s announcement of a halt to vessel traffic through the Strait of Hormuz, one of the world’s most important energy routes. This escalation pushed oil prices sharply higher and kept currency trading clearly cautious.
The US dollar against the Japanese yen remained relatively stable at 160.52 yen, staying above the 160 level, which had previously triggered intervention by Japanese authorities in April. Attention is now turning to the upcoming Bank of Japan meeting, amid broad expectations that interest rates could be raised to 1.0% as inflation remains above the central bank’s target.
Across other Asian markets, the Chinese yuan was steady against the dollar, while the US dollar against the South Korean won rose by around 0.2%. The US dollar against the Indian rupee also gained by the same percentage, while the Singapore dollar and the Australian dollar showed no significant moves during the session.
On the US data front, May inflation figures showed an acceleration in consumer prices, mainly driven by higher energy costs as tensions in the Middle East intensified. However, core inflation appeared more contained, rising by only 0.2% month on month compared with 0.4% in April.
ING analysts believe the rise in headline inflation was clearly driven by higher gasoline prices and airfares, while other components looked more stable. Still, inflation remains exposed to swings in energy prices, especially if Middle East disruptions continue to put pressure on oil markets.
Markets are now awaiting US producer price data and weekly jobless claims, looking for further signals on the direction of inflation and the chances of a Federal Reserve move in the coming period.
Asian stocks recovered their early losses during today’s trading, posting limited gains supported by a partial rebound in technology shares after strong pressure hit the sector in recent sessions. This improvement came as investors held on to hopes of easing tensions between the United States and Iran, although caution continued to dominate risk appetite.
Asian markets were pressured at the start of the session by weak performance on Wall Street, where technology shares continued to weigh on US indices, alongside the release of strong US inflation data for May. Meanwhile, S&P 500 futures stabilized during Asian trading after managing to trim part of their initial losses.
Technology heavy Asian markets led the recovery attempts, with South Korea’s KOSPI rising 0.2% after initially falling by around 4% at the start of the session. The rebound was supported by a recovery in SK Hynix shares after reports indicated that the company plans to triple its wafer production capacity. Japan’s Nikkei also posted a slight gain of 0.1% as selling pressure in technology shares partly eased.
Chip stocks had faced strong pressure this week as investors moved to take profits following a sharp rally driven by the artificial intelligence sector in May. However, momentum in this sector started to lose some strength in June amid growing questions over the long term returns from heavy investments in artificial intelligence.
In contrast, Hong Kong’s Hang Seng index underperformed other markets, falling 1.3% under pressure from losses in major technology shares. Alibaba dropped more than 5% as questions resurfaced over the company’s prospects in artificial intelligence, while JD.com fell more than 3% after local reports said the company was facing regulatory scrutiny related to allegations of misleading advertising.
On the broader market front, Asian markets continued to trade cautiously while investors monitored developments in the US Iran conflict. Washington had announced strikes on several military targets inside Iran, before Tehran responded by targeting US bases and Washington’s allies in the region. Although the US military said the latest round of strikes had ended, President Donald Trump’s threats of further escalation kept markets on alert.
Oil prices jumped after the latest escalation, adding further pressure on markets as inflation concerns returned to the forefront. US interest rate expectations also remained a key market driver after strong inflation data, with investors awaiting producer price data that could provide additional signals on the direction of monetary policy in the period ahead.
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