Most Asian currencies tread water on Tuesday, taking little cheer from a softer dollar as traders remained cautious ahead of more cues on U.S. inflation and the Federal Reserve this week.

Particular focus was on the Chinese yuan, which hovered near its weakest level in four months after a bruising sell-off last week. Measures by the People’s Bank of China so far appeared to be providing little support to the currency.

Chinese yuan (USDCNY) breaks past 7.2, intervention in focus
The Chinese yuan weakened on Tuesday, with the USDCNY pair rising 0.1% to 7.2178- its highest level since mid-November. The offshore yuan’s USDCNH pair fell 0.1% but remained well above the psychologically important 7.2 level.

Weakness in the yuan came even as the PBOC set a stronger-than-expected midpoint, and was seen instructing local banks to buy yuan and sell dollars on the open market.

Recent losses in the yuan were driven by worsening sentiment over a Chinese economic recovery, while the PBOC also flagged more potential interest rate cuts to provide stimulus. Both factors bode poorly for the yuan, which is one of the worst-performing Asian currencies over the past two years.

But sustained weakness in the yuan could potentially attract more aggressive intervention by the PBOC, given Beijing’s growing discomfort with weakness in the yuan.

Japanese yen steadies after govt warnings
The Japanese yen steadied on Tuesday, with the USDJPY pair hovering around 151.36. The pair remained close to its highest level in four months.

Recent weakness in the yen, which came despite the Bank of Japan’s first rate hike in 17 years, spurred warnings over potential intervention by the Japanese government. The warnings, particularly comments from top Japanese currency diplomat Masato Kanda, saw the yen stabilize.

Focus was now on upcoming consumer inflation data from Tokyo, due later in the week.

Broader Asian currencies moved in a flat-to-low range, amid few immediate cues. The Australian dollar’s AUDUSD pair rose 0.1%, while the South Korean won’s USDKRW rose 0.1%.

The Singapore dollar’s USDSGD fell 0.1%, while the Indian rupee’s USDINR stabilized after shooting up to record highs earlier in March.

Dollar steadies with PCE inflation, Fed comments in focus
The dollar index and dollar index futures fell in Asian trade on Tuesday, extending overnight losses as the greenback saw some profit-taking after a melt-up to one-month highs.

Still, traders remained heavily biased towards the dollar ahead of key inflation and Federal Reserve signals this week. PCE price index data- the Fed’s preferred inflation gauge- is due on Friday, and is widely expected to factor into the central bank’s outlook on interest rates.

Along with the PCE data, addresses by key Fed officials, including Chair Jerome Powell and FOMC member Mary Daly are also on tap this week.