Dollar Weakens Ahead of Inflation Data, Asian Currencies Remain Flat

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As markets wait for U.S. inflation data, most Asian currencies remained flat or weakened on Monday, although the dollar showed weakness due to uncertainty ahead of the data's release. Analysts expect U.S. inflation to remain elevated, leading to the Federal Reserve keeping interest rates high for longer.

The Chinese yuan fell 0.1%, remaining close to breaching the 7 level, while markets await Chinese trade and inflation indicators. Analysts predict weakness in Chinese imports and inflation in April, pointing to a sluggish recovery, despite relaxed COVID-19 restrictions earlier this year.

The South Korean won and Taiwan dollar both fell 0.2%, while the Japanese yen rose 0.1% due to safe haven demand. Meanwhile, Japanese service sector activity grew at a record pace in April, indicating resilience in Asia's second-largest economy.

The Australian dollar was the exception, rising 0.4% as a private survey showed that Australian business conditions remained sturdy in April.

Markets are pricing in the possibility that U.S. interest rates have peaked, with Fed Fund futures prices indicating a 90% probability that the Fed will hold rates in June. The dollar weakened on this notion, with the dollar index and dollar index futures falling about 0.1% each on Monday.

This week's focus is on U.S. consumer price index inflation data, due on Wednesday, which is expected to show inflation easing slightly in April but remaining above the Fed's 2% annual target range. Markets are also awaiting more cues on a potential U.S. banking crisis, with a Fed survey of U.S. loan activity due later in the day.

Asian currencies remain vulnerable to these fears, given their heavy risk exposure.

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