Investing.com — Most Asian currencies rose on Friday as strong economic data from the U.S. and China eased recession fears, but rising risk appetite put fresh pressure on the Japanese yen.
The dollar strengthened slightly after better-than-expected labor market data, but lingering hopes of interest rate cuts kept the dollar from gaining much more significantly.
Rising risk appetite in the equity markets also contributed to boosting confidence in the local markets.
Chinese yuan holds firm as inflation accelerates
China's yuan strengthened on Friday, with the renminbi and renminbi weakening 0.1% after the People's Bank of China set a stronger-than-expected midpoint rate.
The yuan was also boosted by data showing China's inflation rose more than expected in July, while inflation fell slightly more than expected.
Data suggests that recent interest rate cuts in China have contributed somewhat to rising consumer spending and prices, but in the longer term lower interest rates bode poorly for the yuan.
Traders were also cautious about whether Friday's data indicated a trend, given that China's disinflation remains persistent despite some strength in July.
Japanese Yen Falls as Risk Sentiment Improves
The Japanese yen was stable on Friday but has fallen sharply in recent trading following less hawkish signals from the Bank of Japan and improving sentiment which has reduced safe-haven demand for it.
The euro fell slightly to 147.22 yen against the yen, but was still trading well above the low of around 141.6 yen hit earlier this week.
The yen's reversal came after Bank of Japan officials said they would not raise interest rates while market volatility was rising, softening the hawkish message the central bank delivered at its late July meeting.
However, despite the yen's weakening this week, it still maintained strong gains against the dollar over the past month, especially as the global carry trade began to unwind.
Dollar steadies, awaiting CPI data
Both currencies steadied in Asian markets after showing modest strength in overnight trading.
The better-than-expected data strengthened belief that the labor market is not slowing as sharply as last week's employment report suggested.
However, despite these encouraging data, traders broadly maintained their expectations for a September rate cut, although they did lower their expectations for a 50 basis point cut.
Asian currencies across the board rose on improving sentiment, with the interest-sensitive South Korean won paired down 0.7 percent and the Singapore dollar down 0.2 percent in holiday trading.
The Australian dollar rose 0.1 percent, extending gains as hawkish signals from the Reserve Bank of Australia boosted the currency.
The Indian rupee pair has edged down from its record highs after the Reserve Bank of India took a slightly more hawkish stance and also slightly lowered its growth forecast for the current quarter.
