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The dollar hovered near a one-month peak versus major peers on Thursday after robust U.S. retail sales data added to building expectations the Federal Reserve will not rush to lower interest rates.

The U.S. dollar index, which measures the currency against a basket of six rivals, eased slightly to 103.29 in the Asian afternoon, after reaching 103.69 on Wednesday for the first time since Dec. 13.

Traders have trimmed the odds of a first Fed rate cut by March to 61%, from 65.1% on Tuesday, according to CME's FedWatch Tool. The market is still pricing in a likely 150 basis points of cuts by the end of the year, even as Fed officials including Governor Christopher Waller this week pushed back against expectations of rapid policy loosening.

"Pricing in the US rates market now looks much more reasonable," said Tony Sycamore, an analyst at IG. "The rebound in the USD in 2024 has come far enough for now."

The dollar pushed as high as 148.525 yen overnight for the first time since the end of November.

It was last trading 0.08% lower on the day at 148.04 yen. At the end of last week, though, it was as weak as 144.35 yen.

Investors have been steadily pricing out hawkish Bank of Japan wagers, not least due to the devastating New Year's Day quake in central Japan. The BOJ meets on policy on Monday and Tuesday of next week.

Traders have trimmed the odds of a first Fed rate cut by March to 61%, from 65.1% on Tuesday, according to CME's FedWatch Tool. The market is still pricing in a likely 150 basis points of cuts by the end of the year, even as Fed officials including Governor Christopher Waller this week pushed back against expectations of rapid policy loosening.

"Pricing in the US rates market now looks much more reasonable," said Tony Sycamore, an analyst at IG. "The rebound in the USD in 2024 has come far enough for now."

The dollar pushed as high as 148.525 yen overnight for the first time since the end of November.

It was last trading 0.08% lower on the day at 148.04 yen. At the end of last week, though, it was as weak as 144.35 yen.

Investors have been steadily pricing out hawkish Bank of Japan wagers, not least due to the devastating New Year's Day quake in central Japan. The BOJ meets on policy on Monday and Tuesday of next week.

"I think dollar-yen is going to be floating between 145 and even 150 in the near term," a level last seen in mid-November, said Shoki Omori, chief Japan desk strategist at Mizuho Securities. Should the BOJ stick to its dovish message next week, and if Fed Chair Jerome Powell strikes a similar posture to Waller at the U.S. central bank's policy meeting on Jan. 30-31, the dollar could push beyond 150 yen by the start of February, Omori said.

"Japanese officials could start to come in and verbally intervene at any time now" to try and slow the yen's decline, he added.

The euro was 0.09% higher at $1.08915. It had bounced from a five-week low of $1.08445 on Wednesday, supported by ECB President Christine Lagarde's comments to Bloomberg that there would likely be majority support among ECB officials for an interest rate cut in the summer, later than market expectations for a spring cut.

Sterling was little changed at $1.26815, following a rally on Wednesday after data showed inflation unexpectedly accelerated in December, reinforcing expectations the Bank of England will be slower to cut rates than its peers.

The British currency's 0.31% overnight jump snapped a three-day decline against the greenback, and limited Wednesday's gains for the dollar index, of which sterling is a part. The Australian dollar was little changed at $0.65545, after recovering from losses as steep as 0.04% to $0.65255 earlier when data showed an unexpected drop in employment in December, adding to the case that rates have peaked in the country.

"There's clearly some technical support around $0.6520 which bears are hesitant to short above," said Matt Simpson, senior market analyst at City Index.

"Yet the jobs report doesn't provide any meaningful reason to be long AUD," he added. "And that means its next directional move remains in the hands of Fed expectations, and therefore the U.S. dollar."

The dollar fell to a two-week low against the euro and a more than four-month low against the Japanese yen in a broad based selloff on Thursday, after the Federal Reserve on Wednesday indicated that rate cuts are likely next year.

The euro and pound, meanwhile, were supported by the European Central Bank and the Bank of England affirming the need to hold rates higher for longer.

Fed Chair Jerome Powell said at Wednesday's Federal Open Market Committee (FOMC) meeting that the tightening of monetary policy is likely over, with a discussion of cuts in borrowing costs coming "into view". The Fed's projections implied 75 basis points of cuts next year, from the current level.

"The Fed was very dovish yesterday," said Athanasios Vamvakidis, global head G10 FX strategy at BofA Global Research. “The strong consensus… was for a balanced tone by Powell. Instead, Powell doubled-down, with a very dovish tone."

The dollar index was last at 101.95, down 0.89% on the day. It earlier reached 101.76, the lowest since Aug. 10.

Fed funds futures traders are now almost completely pricing in a 25 basis points cut in March, and 150 basis points in rate reductions by Dec. 2024.

“The market has been coming around to the idea that inflation won’t be sticky or problematic over the past six weeks and now central banks are confirming it,” said Adam Button, chief currency analyst at ForexLive in Toronto.

“The market is running with the idea that rates will return to low levels in time - the bigger picture idea is that we’re headed back to a 2010s era of low growth and low inflation, rather than a 1970s era of volatile inflation,” he said.

The greenback briefly pared losses after data showed that U.S. retail sales unexpectedly rose in November.

The euro gained 1.08% to $1.0991, the highest since Nov. 29. It is on track for its biggest daily percentage gain since Nov. 14.

The ECB kept rates steady and pushed back against bets on imminent cuts to interest rates on Thursday by reaffirming that borrowing costs would remain at record highs despite lower inflation expectations.

“The ECB was unable to “out-dove” yesterday's pivot by the Fed. The ECB continues to signal that rate hikes are done but their updated economic projections show no reason to hurry towards less restrictive policy,” said Samuel Zief, head of global FX strategy at JPMorgan Private Bank in London.

The pound rose 1.11% and earlier reached the highest since Aug. 22 after the Bank of England left interest rates unchanged and said that interest rates needed to stay high for "an extended period". It is also on pace for the best day since Nov. 14.

"The main message remains that rates will remain high for as long as it takes, which effectively is a push-back to market pricing early cuts," said BofA's Vamvakidis.

The greenback fell 0.63% against the Swiss franc and hit the lowest level since July 27 after the Swiss National Bank held rates steady at 1.75%, as expected and acknowledged that inflationary pressure has decreased slightly over the past quarter.

It also tumbled 2.28% against the Norwegian crown to the lowest since August 15 after the Norges Bank unexpectedly raised rates by 25 basis points to 4.5%, adding that they would likely stay at that level for some time. It is looking at the largest drop since Jan. 6.

The yen reached the highest since July 31, with the dollar last down 0.68% against the Japanese currency at 141.94.

Expectations that the Bank of Japan (BOJ) could end negative interest rates at its monetary policy meeting on Dec. 18-19 have largely been dampened, but the BOJ could make tweaks to its statement, such as language that the bank will not hesitate to ease further if necessary, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

That kind of change could be regarded as "one step toward normalisation ... so that could be positive for the Japanese yen," he said.

The Australian dollar, meanwhile, hit a more than four-month high at $0.6728 after domestic net employment jumped by 61,500 in November, compared to an increase of around 11,000 that markets had been forecasting. It was last up 0.54% at $0.6696.

The kiwi reached $0.6249, the highest since July 27, despite data showing the New Zealand economy unexpectedly contracted in the third quarter. It was last up 0.52% at $0.6206.

Bitcoin edged up 0.25% to $42,994.

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Currency bid prices at 3:00PM (2000 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 101.9500 102.8800 -0.89% -1.488% +102.9100 +101.7600

Euro/Dollar $1.0991 $1.0875 +1.08% +2.58% +$1.1009 +$1.0874

Dollar/Yen 141.9400 142.8950 -0.68% +8.25% +142.8900 +140.9500

Euro/Yen 156.00 155.38 +0.40% +11.19% +156.0500 +153.8800

Dollar/Swiss 0.8661 0.8717 -0.63% -6.33% +0.8731 +0.8632

Sterling/Dollar $1.2756 $1.2618 +1.11% +5.49% +$1.2793 +$1.2614

Dollar/Canadian 1.3410 1.3519 -0.81% -1.03% +1.3514 +1.3395

Aussie/Dollar $0.6696 $0.6661 +0.54% -1.76% +$0.6728 +$0.6657

Euro/Swiss 0.9520 0.9477 +0.45% -3.79% +0.9544 +0.9455

Euro/Sterling 0.8615 0.8617 -0.02% -2.59% +0.8634 +0.8587

NZ $0.6206 $0.6174 +0.52% -2.26% +$0.6249 +$0.6172

Dollar/Dollar

Dollar/Norway 10.5220 10.7800 -2.28% +7.34% +10.7760 +10.4500

Euro/Norway 11.5677 11.7239 -1.33% +10.23% +11.7411 +11.4925

Dollar/Sweden 10.2359 10.3166 +0.28% -1.65% +10.3353 +10.1950

Euro/Sweden 11.2509 11.2193 +0.28% +0.91% +11.2573 +11.1710

Strategists at international payments firm Convera say the month of December could bring with it a break above the key 1.28 level for the Pound to Dollar exchange rate (GBPUSD).

"The British pound has risen almost 5% against the US dollar in November, its biggest monthly rise since November last year. Trading above $1.27, this extends the winning streak of higher highs and higher lows to four consecutive sessions as USD weakness gathers pace," says George Vessey, Lead FX Strategist at Convera.

The Pound has rallied through November, helped by unmistakable signals from the Bank of England that UK interest rates won't be cut anytime soon, disappointing growing market expectations that as many as four rate cuts would be delivered in 2024.

Bets for rate cuts had eased UK monetary conditions and risked undoing the work of previous rate hikes, prompting key figures at the Bank of England to push back and warn interest rates will need to remain at 5.25% for an extended period.

"Although it's mostly US developments driving markets at present, some more hawkish commentary from the Bank of England this week has helped the pound. BoE policymakers pointed out that services inflation, which makes up 45% of the consumer inflation basket, is proving much stickier than expected and therefore interest rates would remain high for an extended period," says Vessey.

The Pound to Dollar exchange rate hit a peak at 1.2732 in early midweek trade as inventors recalibrated expectations, and Convera sees the potential for an extension beyond here.

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Money markets are still pricing around 60 basis points of policy easing from the UK central bank by the end of 2024, suggesting there might be further rate cut bets to be unwound, which could support Sterling.

Indeed, economists at HSBC (LON:HSBA) reckon it won't be until 2025 that the Bank of England can deliver a first cut.

Gains for the Pound-Dollar pair also have a broadly weaker Dollar to thank. "The US dollar accelerated its tumble," says Charalampos Pissouros, Senior Investment Analyst at XM.com.

"This time, it was Fed Governor Chris Waller who pushed the greenback off a cliff as the normally hawkish policymaker made a surprise turn and said that if the decline in inflation continues for several more months, they could start lowering the policy rate," he explains.

December could see these themes continue if the incoming data in the U.S. and UK doesn't throw up any surprises.

From a technical perspective, Convera is looking to a key technical level as a potential target in the coming month.

"The 200-week moving average of GBP/USD is located at $1.2843 and given the positive momentum of the currency pair right now, we cannot rule out a test of this level in December," says Vessey.

But the rise in the Pound-Dollar exchange rate has now reached overextended proportions, according to the daily Relative Strength Index (RSI).

The RSI is now above the critical 70 level (see the lower panel in the above chart).

A move above 70 signals overbought, and we expect the RSI to revert into the 30-70 range as consolidation or retracement evolves in the Pound-Dollar exchange rate.

The rally has been fast and furious over the past few days, and it could now be time to see some calmer waters to allow the market to readjust, particularly as month end comes about.

"Similar to that of EUR/USD, the probability of a correction lower from these levels appears elevated given the overbought conditions on the daily relative strength index," says Vessey.

The dollar gained on Wednesday after U.S. retail sales fell less than expected in October, bouncing off its biggest drop in a year the previous day when cooler U.S. inflation data added to expectations that the Federal Reserve is done raising rates.

Retail sales slipped 0.1% last month and data for September was revised higher to show sales increasing 0.9% instead of the previously reported 0.7% rise, the U.S. Commerce Department's Census Bureau said.

Economists polled by Reuters had forecast retail sales would fall 0.3%.

The better than expected reading lifted the dollar, even though a weak reading on producer prices, along with Tuesday's consumer price index report, signaled a cooling economy that still suggests the Fed's fight against inflation is on track.

"Today's (retail sales) number doesn't really move the needle one way or the other, other than sort of convince you that things are definitely slowing down in the U.S. still," said Brad Bechtel, global head of FX at Jefferies in New York.

The fourth quarter in the past two years has not been good for the dollar, which peaked in the third quarter of both 2021 and 2022 and sold off through to January each year, Bechtel said.

"I'm not necessarily saying that history is going exactly to repeat itself, but I don't necessarily want to be buying or getting long the dollar just yet," he said. "We need to see more of this play out."

The dollar index, a measure of the U.S. currency versus six others, rose 0.33%, off its two-month low of 103.98 on Tuesday. The euro was down 0.36% at $1.084, after touching its highest since August the day before.

Investors have all but wiped out the chance of another rate hike from the Fed in December, while bets of a rate cut in May next year increased to more than 65%, according to the CME Group’s FedWatch Tool.

In Britain, inflation eased to its slowest pace in two years in October, which prompted a reassessment of the outlook for Bank of England policy and dented sterling.

"For me what this does concern is we're done, when it comes to rate hikes, and it's a question of when do rate cuts come and that's what markets are staring to price, particularly if you look at the bond market," CMC Markets (LON:CMCX) chief market strategist Michael Hewson said.

The pound eased back from Tuesday's two-month highs after data showed British inflation ran at its slowest pace in two years in October, at 4.6%. This was below forecasts for a reading of 4.8% and below September's 6.7% reading.

Sterling was last down almost 0.6% at $1.2429. On Tuesday, the pound rose by 1.8% against the dollar, marking its biggest one-day gain in a year.

The dollar was stronger against the yen, up 0.45% at 151.65 after the retails sales date. Earlier in Japan, data showed the economy contracted in July-September, complicating the Japanese central bank's efforts to ease out of its ultra-easy monetary policy. On Monday, the yen hit a one-year low close to 152.

The dollar was knocked back from the 152 level on Monday, after a routine options expiry unleashed some profit-taking that took the yen to around 151.20.

LSEG data shows Wednesday's New York expiry has around $3.9 billion in open interest between 150.50 and 152, with $2.6 billion at 152 alone, which might create more volatility.

The offshore Chinese yuan, meanwhile, received some support The offshore yuan, meanwhile, briefly ticked up to a three-month high of $7.2385 against the dollar after domestic industrial output and retail sales growth beat expectations.

Evidence of ongoing weakness in China's property sector, where data showed sales fell faster in October and investment in real estate slumped, took some of the shine off the rally.

Investors are closely watching events in Israel as a geopolitical risk to markets, with some expectation the violence could prompt a move into safe haven assets.

Gunmen from the Palestinian group Hamas entered Israel in an unprecedented attack on Saturday. Western countries, led by the United States, denounced the attack and pledged support for Israel.

Rising geopolitical risk could see buying in assets like gold and the dollar and potentially boost demand for U.S. Treasuries, which have been sold off aggressively, analysts said.

"This is a good example of why people need gold in their portfolios. It is a perfect hedge against international turmoil," said Peter Cardillo, chief market economist at Spartan Capital Securities, who predicted the dollar would also benefit.

"Anytime there is international turmoil, the dollar strengthens," said Cardillo.

Markets have been reacting in recent weeks to an expectation that U.S. interest rates will stay higher for longer. Bond yields have soared while the U.S. dollar has been on a streak of gains. Stocks meanwhile had sharp losses for the third quarter but stabilized in the last week.

"Whether this is a massive market moment or not depends on how long it lasts and whether others are sucked into the conflict," said Brian Jacobsen, chief economist at Annex Wealth Management, of the situation in Israel. Jacobsen questioned how much impact it would have on the oil price despite Iran having been boosting output.

The Hamas attack was openly praised by Iran and by Hezbollah, Iran's Lebanese allies.

"Iranian oil production has been increasing, but any progress they’ve been making behind the scenes with the U.S. will be dramatically undermined by Iran’s celebrating Hamas’s actions," said Jacobsen, adding that "the possible output loss matters, but it won’t be earth shattering."

"It’s most critical to see how Saudi Arabia reacts," said Jacobsen. Washington has been trying to strike a deal that would normalise ties between Israel and Saudi Arabia.

David Kotok, chair and chief investment officer at Cumberland Advisors in Sarasota, Florida, said that the situation was concerning as the U.S. is weakened by dysfunction in Washington. Republicans are looking for a successor to ousted Speaker Kevin McCarthy of the House of Representatives, and a budget showdown looms.

"I am very worried about more explosive situations that require U.S. determination and U.S. defense capability which is being injured," by the situation in Washington, Kotok said.

The euro suffered a brutal September selloff that continued Monday following fresh signs of economic trouble in Europe just as experts warn that the single currency could hit parity with the dollar in the coming months as U.S. interest rates remain higher for longer.

EUR/USD fell 0.79% to $1.0487 after data showed Euro zone manufacturing activity remained in a deep contraction.  

Eurodollar stumbles along road to parity   

“We see a window for further dollar strength that could take EUR/USD back toward parity,” MUFG warned in its October outlook, released on Monday. 

The last time the euro hit parity and fell below that level was in July last year, pressured by concerns of an energy supply crisis and economic woes.

While a stumbling euro economy, pressured by weakness in Germany, the economic engine of Europe, has returned to haunt the euro, the bulk of the weakness has dollar’s fingerprints all over it.

Dollar strength unlikely to fade as Treasury yields advance 

The dollar index, which wrapped up its 11^th straight weekly win last week, has jumped by more than 7% since its July trough, as the world’s reserve currency drew strength from the Federal Reserve’s higher for longer message that pushed Treasury yields to multi-decade highs.

“The risk for yields is to the upside given the time of year,” MUFG added. “With the potential for less liquidity ahead, we would not be shocked to see a break towards or above 5% on 10s.”

This window of dollar strength, MUFG says, could be reinforced should the Fed decide to hike rates in November.

The odds of a November rate hike haven garnered some attention recently -- after the U.S. narrowly avoided a government shutdown that would have likely dented near-term growth – moving to 30% from about 18% last week, according to Investing.com’s Fed Rate Monitor tool.

Euro bulls: Try again next year?

The months of selling in EUR/USD has forced the currency pair to give up all its gains for the year, though the end of the year or early next year could bring some hope or respite as higher rates are expected to make a larger dent in U.S. economic growth.

“As the data turns weaker in the US and the EUR/USD rate can partially retrace declines over recent months,” MUFG added.

US growth receding and Europe finding a trough in the next few months, along "with a continued deceleration in inflation pressures ... would help alleviate the key pressures that have kept the dollar elevated for much of this year," Goldman Sachs said.

Argentina's annual inflation rate shot up to 124.4% in August and hit its highest level since 1991, stoking a painful cost-of-living crisis in the South American country.

The soaring prices, which rose more than expected, are forcing hard-hit shoppers to run a daily gauntlet to find deals and cheaper options as price hikes leave big differences from one shop to the next, with scattered discounts to lure shoppers.

The August monthly inflation reading of 12.4% - a figure that would be eye-watering even as an annual figure in most countries worldwide - is pushing poverty levels past 40% and stoking anger at the traditional political elite ahead of October elections.

"It's so hard. Each day things costs a little more, it's like always racing against the clock, searching and searching," said Laura Celiz as she shopped for groceries in Tapiales on the outskirts of Buenos Aires. "You buy whatever is cheaper in one place and go to the next place and buy something else."

Her husband, Fernando Cabrera, 59, was doing sums on a calculator to compare fruit and vegetable prices.

"In this way we try to beat inflation or at least compete with it a little," he added.

A central bank analyst poll, released after the data, forecast inflation would end the year above 169%, a sharp hike from its estimate a month earlier of 141%. It predicted monthly inflation of 12% in September and 9.1% in October.

Argentina is caught in a cycle of economic crises, with a major loss of confidence in the peso driving steady depreciation, triple-digit inflation, negative central bank reserves and a flagging economy due to drought hitting farming.

The country is also battling to salvage a $44 billion deal with the International Monetary Fund (IMF) and facing the prospect of a $16 billion legal bill after a U.S. court ruling related to the state takeover of energy firm YPF a decade ago.

'PEOPLE ARE ANGRY'

That's playing into a race towards presidential elections next month, with radical libertarian Javier Milei the shock frontrunner ahead of establishment candidates economy minister Sergio Massa and conservative Patricia Bullrich.

And inflation itself could still get worse amid the election uncertainty, which has revived memories of hyperinflation from the 1980s among those who lived through it.

"Some estimate say it could accelerate to 180%, which is why we are talking about record inflation levels," said local economic analyst Damian Di Pace, adding that other nations in the region were meanwhile seeing inflation cool.

"While the rest of the Latin American countries have single-digit inflation, Argentina is already in triple-digits."

Massa, who has cut taxes to alleviate the impact of inflation on workers, said late on Wednesday that August had been the "hardest" month, pointing the finger at the IMF.

"The 20% devaluation of the currency, imposed by the IMF, we knew it was going to hit the pockets of all Argentine families," he said.

Business owners, who themselves face a tricky cycle of wholesale prices rising before they've shipped merchandise and been able to restock, are also suffering from product shortages due to the uncertainty of inflation.

Butcher Marcelo Capobianco, 53, fears having to close his business and is considering emigrating overseas. He displays meat prices in dollars, the currency that many use as a refuge from the constant devaluation of the peso.

"It's dramatic. We don't know how we're going to pay the rent this month, how we're going to pay the electricity," Capobianco said at his butcher shop in Olivos, on the outskirts of Buenos Aires. "People are angry and have every right to be because they can't afford to buy a kilo of meat."

"We are already thinking about what we are going to do because, in reality, if this continues, I think we are going to have to shut up shop," he said.

The U.S. dollar edged higher in early European trade Tuesday, reversing some of the previous session’s sharp losses as traders revised their positions before data showing a potential rise in U.S. inflation. 

At 03:10 ET (07:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 104.332, after falling 0.5% in the prior session, retreating from last week's six-month high of 105.15.

U.S. inflation release the main focus

The focus of the foreign exchange market this week is squarely on U.S. consumer inflation data due on Wednesday, which is expected to set the tone for a Federal Reserve meeting next week. 

The central bank is widely expected to keep rates on hold in September, but signs that inflation is proving sticky could prompt another hike before the end of the year.

“The FOMC has already entered the pre-meeting blackout period, but the latest indications clearly pointed to a pause in September. Can inflation change policymakers’ minds? It would probably need to be a materially stronger than expected print, but from an FX perspective, expect the bullish pass-through to the dollar to be felt anyway,” said analysts at ING, in a note.

U.K. wage growth remains high

GBP/USD traded largely flat at 1.2505, as traders digested the latest U.K. employment data.

The U.K. unemployment rate rose to 4.3% in the three months to July from 4.2% a month earlier, its highest since the three months to September 2021, with the labor market showing signs of cooling.

However, wages excluding bonuses were 7.8% higher than a year earlier in the three months to July - the joint-fastest rate since records began in 2001 - putting more pressure on the Bank of England to tighten monetary policy further.

BOE policymaker Catherine Mann warned late Monday that it's too soon to stop raising rates, and the central bank is widely expected to hike by another 25 basis points.

ECB policymakers have tricky decision

EUR/USD fell 0.1% to 1.0732, after Spanish inflation came in as expected in August, rising 2.6% on an annual basis, a jump up from 2.3% the prior month.

The European Central Bank meets on Thursday, and having raised rates at each of its past nine meetings, policymakers are now debating whether to raise the deposit rate again, to 4%, or pause.

Inflation remains above target, but growth is slowing in the region, and the latest German ZEW economic sentiment data, due later Tuesday, is expected to show a deterioration in confidence in the eurozone’s dominant economy.

Yen steadies after Ueda’s comments

USD/JPY rose 0.2% to 146.87, with the yen handing back some of the previous session’s outsized gains on the back of comments from Bank of Japan Governor Kazuo Ueda, who said that an end to the BOJ’s negative interest rates could be close. 

Such a scenario would bode well for the yen, but the currency is still nursing steep losses for the year, hit chiefly by a widening gap between local and international interest rates.

Chinese yuan steadies but economic growth doubts remain

USD/CNY rose 0.1% to 7.2924, with the yuan remaining above Friday's 16-year low after China's central bank rolled out a series of strong daily midpoints. 

That said, doubts remain over the strength of the country’s recovery from its COVID hit, with a Reuters poll now forecasting 2023 GDP growth of 5%. This is in line with China’s official forecast, but lower than forecasts from investment banks.

Most Asian stocks edged lower on Monday as markets remained risk-averse before more cues on U.S. inflation and interest rates, while Alibaba logged steep losses after its cloud unit boss unexpectedly quit.

Hong Kong’s Hang Seng index was by far the worst performer among its peers, down 1.6% as heavyweight technology stocks slumped. Alibaba Group (HK:9988) (NYSE:BABA) was the biggest decliner of the lot, losing more than 3% after the e-commerce giant said its outgoing CEO Daniel Zhang will also quit as CEO and chairman of its cloud unit. 

Media reports over the weekend also said that Alibaba was considering putting a hold on plans to list its Freshippo grocery chain, due to a weaker-than-expected valuation outlook. 

Hong Kong stocks played catch-up with their regional peers, following a trading suspension on Friday due to adverse weather conditions. 

Japan’s Nikkei 225 fell 0.2%, while the TOPIX was flat as Bank of Japan Governor Kazuo Ueda said that the bank could potentially consider a pivot away from negative interest rates, ending the decades of monetary support enjoyed by local stocks. 

Ueda told a local newspaper that the BOJ will have enough data by the end of the year to determine whether rates need to remain negative. 

Australia’s ASX 200 was flat, taking some support from optimism over China, while futures for India’s Nifty 50 index pointed to a slightly negative open. South Korea’s KOSPI rose 0.2%, buoyed by a recovery in local tech stocks from recent losses. 

A spike in U.S. Treasury yields, in anticipation of key inflation data due later this week, still pressured most Asian technology stocks. Regional stocks were also reeling from a potential escalation in a U.S.-China trade war, as Beijing barred government officials from using Apple Inc’s (NASDAQ:AAPL) iPhone. 

Chinese shares rise as inflation improves 

Chinese shares were the outliers among their peers on Monday, as data released over the weekend showed some improvement in the country’s deflationary trend. The Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose 0.2% and 0.4%, respectively, as data released on Saturday showed consumer price inflation rose in August after a decline in the prior month.

But producer price inflation remained in contraction, albeit at a slower pace than the prior month. 

The improved inflation data was accompanied by more stimulus measures from the Chinese government, particularly a further loosening in property market restrictions.

But Chinese stocks were still trading largely negative for the year, hit by growing concerns over an economic slowdown in the country. While recent data showed some signs of improvement, China's manufacturing sector still remained under pressure from slowing demand, while service sector activity was also cooling.