(Updates prices)
Asian stocks rallied to record peaks on Thursday while sterling edged to a four-month high on strong growth figures, as traders counted down to U.S. data that is expected to show inflation easing and pave the way for rate cuts as soon as September.
U.S. shares hit record highs on Wednesday and futures ESc1 were flat through the Asia session. Bonds and the dollar were broadly steady, keeping the yen on the weak side of 161 per dollar and near its lowest levels in decades.
Japan's Nikkei .N225 rose 1% to a record high of 42,426.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 1.2% to a two-year high. Taiwan stocks .TWII hit a record peak and Australia's ASX 200 (xjo) closed within a whisker of its all-time top.
"The main driver is really the prospect of interest rate cuts," said Shane Oliver, chief economist and head of investment strategy at AMP in Sydney. "If we get a good inflation read, it will tick one of Powell's boxes."
U.S. Federal Reserve Chair Jerome Powell told lawmakers on Capitol Hill overnight that "more good data" would build the case for the U.S. central bank to cut interest rates. Futures pricing implies about a 75% chance of a cut in September.
Economists forecast annual U.S. CPI slowed to 3.1% in June from 3.3% in May.
The Bank of Korea stood pat on interest rates but left out a warning on inflation, while Governor Rhee Chang-yong told reporters that it was time to prepare to pivot to rate cuts.
A shift in tone at the Reserve Bank of New Zealand on Wednesday led to a sharp re-pricing in rate-cut expectations, with the benchmark two-year swap rate NZDSM3NB2Y= diving 18 basis points and the currency NZD=D3 sliding.
Malaysia is expected to hold rates steady later in the day, and the U.S. earnings season will also begin with results from Delta Air Lines DAL.N and consumer bellwether PepsiCo PEP.O , followed by bank results on Friday.
CHINA LAGGING China stocks chimed with the market momentum on Thursday, but a drumbeat of disappointing data and talk of tariffs in its major export markets have made rallies hard to sustain. China GDP print is due on Monday.
Hong Kong's Hang Seng .HSI rose 1%, and on the mainland, the blue-chip CSI300 .CSI300 climbed 1.1% although it remains huddled pretty close to Tuesday's four-and-a-half-month low.
China's yuan CNY=CFXS rallied from an almost eight-month low to 7.2701 per dollar.
Sterling GBP=D3 was firm after the Bank of England's chief economist sounded vaguer about the timing of rate cuts than many traders had expected and touched a four-month high of $1.2866 after British GDP data beat expectations.
Elsewhere, moves were modest ahead of the U.S. CPI release. The euro EUR=EBS ticked higher to $1.0835. The yen JPY=EBS slipped to 161.7 per dollar. Data showed Japan core machinery orders unexpectedly down for a second month running, challenging expectations for interest rates to rise.
The New Zealand dollar found support at its 200-day moving average and traded at $0.6095. The Australian dollar AUD=D3 rose 0.2% to a six-month high of $0.6763.
Treasuries were steady overnight and in Asia, with U.S. two-year yields US2YT=RR holding at 4.62% and benchmark 10-year yields US10YT=RR at 4.29%.
In commodity trade, oil prices edged higher on signals of strong U.S. gasoline demand. Brent futures LCOc1 rose 71 cents, or 0.8%, to $85.79 a barrel. U.S. crude CLc1 climbed 67 cents, or 0.8%, to $82.77 a barrel.
Favourable U.S. weather has wheat futures Wv1 pressured near two-and-a-half month lows.
Gold XAU= crept 0.5% higher to $2,381 an ounce. After a selloff last week, bitcoin BTC= has steadied around $58,900.
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