Asian session review: US dollar is showing positive dynamics

During today's Asian trading, the US dollar rose moderately against major currencies, continuing Friday's increase, while market participants are preparing for the publication of US inflation data that will provide clues about the scale of the Fed's rate cut.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.22% to 101.40.

Friday's data on the US labor market failed to clarify the question of how much the Fed will cut rates at the September meeting. Meanwhile, Fed officials made it clear that they are ready to begin easing monetary policy at the September 17-18 meeting, noting the cooling in the labor market, which may turn into something more serious in the absence of policy changes. According to the CME FedWatch Tool, markets see a 29% probability of a 0.5% rate cut in September (down from 30% the week before), and a 71% probability of a 0.25% rate cut (up from 70% the week before), with a 1% rate cut expected by the end of the year. This week, investors will be focused on the US CPI report for August, which will be released on Wednesday. According to forecasts, in August, the overall CPI increased by 0.2% on a monthly basis, which will lead to a decrease in the annual rate to 2.6% (the lowest value since March 2021). A significant drop in gasoline prices indicates a direct decrease in the cost of energy, while food inflation seems to have barely changed. Excluding food and energy, the core CPI likely rose 0.25% in August, which would be the largest increase in four months and keep the annual rate at 3.2%. Overall, August will give an idea of how much the prices of goods may still fall, and whether services, in particular housing, will be able to continue the fight against inflation.

The yen fell 0.45% against the US dollar, but remains near its highest level since August 5, reached on Friday. The yen correction was caused by partial profit-taking. Investors were also assessing Japanese data that showed GDP rose 0.7% q/q in the second quarter, after expanding 0.8% q/q in the first quarter. Economists had expected the economy to expand by 0.8% q/q. On an annualized basis, GDP rose 2.9% - again missing forecasts for 3.1%, which would have been unchanged.

The Chinese yuan fell 0.3% against the US dollar on the back of Chinese inflation data, which showed that CPI growth accelerated in August to its highest level since February, but producer price deflation worsened, reigniting calls for further stimulus measures to prop up the economy.