The dollar recovered some of the losses against its peers that were sparked by the US inflation print, which gave the Federal Reserve a little room to hold interest rates next month

Hong Kong (AFP) - Asian markets mostly fell Thursday as investors shrugged at data showing US inflation dipped further but only marginally, suggesting the Federal Reserve still had much to do in its battle against rising prices.

Adding to the uncertainty was the battle to raise the US debt ceiling to avert a destabilising default, with Democrats and Republicans unable to reach a deal just weeks before the country runs out of cash to pay its bills.

The consumer price index reading was the lowest in two years and a tad below what was expected, giving the Fed a little room to take a break in its long-running rate hike campaign.

However, the figure came after a stronger-than-expected print Friday on jobs creation that showed the world’s top economy remained strong, while observers said further evidence was needed to show that the tightening was bearing fruit.

The 4.9 percent rise in April was far above the Fed’s stated goal of two percent, which some analysts said meant it was unlikely officials would consider cutting rates at the end of the year, as some investors had been betting on.

“The Fed’s policy is working – inflation is coming down, but inflation is still too high,” Valentine Ainouz, at the Amundi Institute, told Bloomberg Television.

“I expect the Fed to maintain rates higher for longer than the market expects.”

And Priya Misra at TD Securities added: “We need more CPI prints to clarify that inflation is definitely declining.

“Markets may be too optimistic and put too much weight on the weakness in some series that are inherently volatile, such as hotels.”

Still, Wall Street largely cheered the figures, with the S&P 500 and Nasdaq rallying, helped by a bump in rate-sensitive tech giants, though the Dow dipped.

Asia was unable to track that.

Hong Kong and Shanghai edged down as below-forecast Chinese inflation data indicated the nation’s economic recovery was still struggling, though it gave the central bank room to provide some stimulus.

Sydney, Seoul, Singapore, Wellington, Taipei, Bangkok and Jakarta also fell. Tokyo was flat while Manila and Mumbai edged up.

London, Paris and Frankfurt rose in early trade.

- ‘Serious economic costs’ -

The dollar rose, bouncing back from Wednesday’s losses against its peers that were fuelled by a pick-up in bets the Fed will not lift rates in June.

The US debt ceiling standoff continues to cause unease on trading floors as party leaders struggle to reach a consensus to allow more borrowing.

President Joe Biden and Republican House Speaker Kevin McCarthy plan to hold another meeting on Friday.

Biden’s Treasury Secretary Janet Yellen warned Thursday about political brinkmanship over the issue.

“In my assessment – and that of economists across the board – a default on US obligations would produce an economic and financial catastrophe,” Yellen said in a speech at G7 finance talks in Japan.

“Short of a default, brinkmanship over the debt limit can also impose serious economic costs.”

Biden has threatened to call off a trip to Asia, including in-person attendance at next weekend’s Group of Seven summit, if the deepening standoff is not resolved soon.

Earlier, former president Donald Trump, who is seeking re-election in 2024, said during a CNN town hall that Republicans should refuse to raise the US debt limit if they do not get the spending cuts they are demanding.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: FLAT at 29,126.72 (close)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 19,743.79 (close)

Shanghai - Composite: DOWN 0.3 percent at 3,309.55 (close)

London - FTSE 100: UP 0.5 percent at 7,780.58

Euro/dollar: DOWN at $1.0928 from $1.0985 on Wednesday

Pound/dollar: DOWN at $1.2576 from $1.2627

Dollar/yen: UP at 134.57 yen from 134.34 yen

Euro/pound: DOWN at 86.90 pence from 86.98 pence

West Texas Intermediate: UP 0.7 percent at $73.09 per barrel

Brent North Sea crude: UP 0.8 percent at $76.98 per barrel

New York - Dow: DOWN 0.1 percent at 33,531.33 (close)