Asian stock markets exhibited indecisiveness on Monday due to concerns that upcoming U.S. inflation data could hinder expectations of lower interest rates. The potential for currency intervention by Japan also halted the yen's decline.
China's central bank intervened to strengthen the yuan, leading to a broader decline in the dollar. The U.S. core personal consumption expenditure (PCE) price index, scheduled for release on Friday, is a key data point that could influence the Federal Reserve's decision on interest rates.
European markets will face their own inflation tests with the release of consumer price data from several countries. Sweden's central bank is expected to maintain interest rates, while the Swiss National Bank's recent rate cut has raised expectations for a dovish statement.
Global expectations for lower borrowing costs have boosted equities, with the S&P 500 showing a significant gain for the year. However, Asian shares outside Japan remained flat, while Japan's Nikkei dipped slightly.
The dollar's rebound was attributed to the dovish stance of other central banks, including the Swiss National Bank and the Bank of England. The People's Bank of China's decision to allow the renminbi to weaken also contributed to the dollar's strength.
Despite a shift away from ultra-easy policies by the Bank of Japan, the dollar remained strong against the yen, with investors anticipating a limited series of rate hikes. Japan's currency official warned against excessive yen weakness, suggesting potential intervention.