Most Asian currencies rose on Monday as the dollar fell sharply from a near six-month peak, while the Japanese yen surged as the Bank of Japan heads Kazuo Ueda to signal a potential pivot away from negative interest rates.
China's positive inflation data also aided other sentiment, as data released over the weekend showed some improvement in Asia's largest economy.
The focus this week is squarely on the U.S., due on Wednesday for more cues on monetary policy and the path of interest rates. The reading is also due two weeks before a, where the bank is set to keep interest rates on hold.
Although inflation remains stuck and the labor market is strong, the bank is also expected to keep rates higher for longer.
The and fell 0.4% each in Asian trade, as investors locked in some profits after the greenback surged to near six-month highs last week.
This offered some relief to Asia currencies, which were otherwise nursing steep losses despite persistent worries about higher U.S. interest rates.
The gain came in at 0.4%, while the index added 0.2%. Optimism over China led to a jump of 0.6%, while 0.2% added 0.2%.
The performance was the best in Asia for the day, rising nearly 1% after governor Ueda told a local newspaper that the BOJ could have enough data by the end of the year to determine whether rates should stay negative.
Ueda said the bank's inflation target was just in sight, allowing the bank to begin considering tightening policy. In the United States, wage growth hasn't been as robust as in the past few years.
A pivot by the BOJ will bring to an end nearly a decade of negative interest rates, narrowing the gap between local and U.S. rates and easing some pressure on the yen.
Despite Monday's surge, the yen was still trading close to 10-month lows, as rising U.S. interest rates made the low-yielding currency appear far less attractive, and worsening risk sentiment dented its appeal for carry trade.
On Monday, the yuan rose after data released over the weekend showed that China's gain in August was back into positive territory. The data also shrank at a slower rate than in previous years.
The readings pushed up hopes that the Chinese economy was stabilizing after experiencing a significant drop in growth this year.
The yuan remained close to a 10-month low, despite other indicators for August still painting a mixed picture of the world's second-largest economy. The manufacturing sector in China remained in contraction, while the service sector grew less.