Asia FX falls as US banking rout dims sentiment ahead of CPI data

 Asia FX falls as US banking rout dims sentiment ahead of CPI data

Investing.com

Asian currencies slipped on Tuesday as worries about a banking crisis in the US weighed on sentiment. A slight recovery in the dollar also weighed on markets ahead of key inflation data to be released later in the day.

The Chinese yuan fell 0.4%, while the Japanese yen lost 0.5% as most regional currencies came under pressure due to uncertainty over the future course of US monetary policy in the face of a possible banking crash.

Asian currencies had initially benefited from expectations that the US Federal Reserve will slow its pace of interest rate hikes to avert further damage to the economy from high interest rates, which had been a key contributor to the collapse of Silicon Valley Bank (NASDAQ:SIVB).

However, markets were unsettled by such a notion ahead of Consumer Price Index data due later in the day, which is expected to show that US inflation remained stubborn in February. Signs of stubborn inflation give the US Federal Reserve more incentive to raise interest rates.

The dollar had fallen sharply against a basket of currencies following the government's interventions in the banking sector. On Tuesday, however, the dollar recouped some losses, and the dollar index and US dollar index futures each rose 0.3%.

However, Fed futures prices show that markets have abandoned expectations that the Fed will raise interest rates by 50 basis points next week, with the majority of traders expecting a 25 basis point hike.

Some analysts, including from Goldman Sachs and Nomura, also spoke of the possibility that the Fed will not raise rates, as market sentiment remains fragile following the SVB collapse.