Tariff Tensions Rock Asian FX Markets, Yen Strengthens on Tokyo Inflation

Asian currencies experienced a downturn on Friday following U.S. President Donald Trump's confirmation of impending tariffs. The Japanese yen, however, saw a slight uptick after Tokyo reported robust inflation figures.

The U.S. Dollar Index edged up by 0.1% during Asian trading hours, as investors awaited the release of the Personal Consumption Expenditures (PCE) price index to assess the Federal Reserve's future interest rate decisions.

President Trump announced that, effective March 4, the U.S. will impose a 25% tariff on imports from Mexico and Canada, along with an additional 10% tariff on Chinese goods, citing concerns over illicit drug flows, particularly fentanyl. This announcement led to a decline in Asian currencies, as investors feared that escalating trade tensions could impede economic growth in export-driven Asian economies, prompting a shift towards the perceived safety of the U.S. dollar.

The Indonesian rupiah and South Korean won were among the hardest hit, each depreciating by approximately 0.8% and 0.7% against the U.S. dollar, respectively. The Chinese yuan also saw marginal losses in both offshore and onshore markets. The Australian dollar fell by 0.2%, while the Malaysian ringgit and Indian rupee declined by 0.5% and 0.1%, respectively. The Singapore dollar remained relatively stable.

Conversely, the Japanese yen strengthened by 0.2% against the dollar. Tokyo's core inflation rose by 2.2% year-on-year in February, slightly down from January's 2.5% increase but still above the Bank of Japan's 2% target for the fourth consecutive month, supporting expectations of potential rate hikes by the central bank.

Market participants are now focusing on the upcoming U.S. PCE inflation data, seeking insights into the Federal Reserve's future monetary policy decisions. Recent weaker-than-expected U.S. economic indicators have fueled speculation about possible rate cuts, though immediate changes are unlikely as the Fed continues to monitor the broader economic landscape.