The dollar stabilized on Thursday amid renewed US military action against Iran, raising market concerns about persistent inflation and high interest rates.
The Chinese yuan remained virtually unchanged after the release of subdued inflation data for June.
Most Asian currencies traded in narrow ranges after the minutes of the Federal Reserve's June meeting, released yesterday, showed that policymakers were widely divided on the need for further interest rate hikes.
The Japanese yen remained near 40-year lows, keeping markets on edge in anticipation of possible government currency intervention.
Chinese Yuan stable after mixed inflation data for june
The USD/CNY pair fell less than 0.1% on Thursday after the release of generally subdued inflation data for June. The consumer price index (CPI) rose 1% year-on-year in June, missing the forecast of 1.1% and slowing from 1.2% in the previous month.
The data points to continued weakness in consumer spending and demand.
The producer price index (PPI) rose to a four-year high of 4.1%, as higher energy and raw material prices driven by instability in the Middle East pushed up producer costs.
The rise in the PPI is expected to ultimately accelerate consumer inflation, as higher production costs are passed on to end consumers.
"The data are shifting from near-deflation to slightly positive inflation. This level of inflation is unlikely to prevent the People's Bank of China from resorting to monetary policy measures if necessary," ING analysts noted in their report, adding that interest rate cuts in China remain a possibility. The rate cut is likely to put pressure on the yuan, although ING does not expect significant currency weakening in the coming months.
Dollar steady as traders assess Iran tensions and Fed minutes
The dollar index stabilized at 100.760 on Thursday after a volatile overnight session.
While the renewed military standoff between the US and Iran initially supported the dollar, it reversed sharply after the Fed minutes showed disagreement among policymakers on whether to raise rates further.
Nevertheless, the US currency remained near recent 13-month highs. Fed officials identified inflation as a key concern: any persistence could lead to rate hikes.
Fears of rising inflation have intensified amid a surge in oil prices this week, fueled by the renewed US military action against Iran. The US has launched several strikes on the Middle Eastern country, and President Donald Trump has declared the ceasefire with Iran to be over. Most Asian currencies remained largely unchanged amid the escalating tensions in the Middle East.
The USD/JPY pair fell 0.1% and remained near a 40-year high. The persistent weakening of the yen kept markets on guard for possible currency intervention from Tokyo, amid repeated warnings from Japanese officials.
The AUD/USD (Australian dollar) pair rose slightly, while the USD/KRW (South Korean won) pair remained stable amid heightened volatility in the local stock market.
The USD/SGD (Singapore dollar) pair was unchanged, as was the USD/INR (Indian rupee).