Most Asian currencies moved in a flat-to-low range on Friday with the Chinese yuan volatile amid suspected intervention by the People’s Bank of China, while the dollar held steady ahead of key inflation data.
Weak risk appetite has seen traders shun most regional currencies this week, while the Japanese yen saw extended buying as it benefited from safe-haven demand, while the currency also benefited from a decline in carry trade. The yen was the best performer among its Asian peers this week.
Commodity-linked currencies, especially those that trade with China, saw some relief on Friday, with the Australian and New Zealand dollars rising slightly. But both have suffered sharp losses this week.
Dollar steady after strong GDP; focus on inflation, Fed
U.S. and British stocks steadied on Friday after seeing some resilience on stronger-than-expected second-quarter data.
The reading raised hopes that the U.S. economy is heading toward a soft landing, with growth remaining steady while inflation eases.
Attention now turns to the data – the Fed’s preferred gauge of inflation. The reading is due later Friday and is expected to show inflation fell further in June.
The personal consumption expenditure data also comes just days before the European Central Bank’s meeting, where the central bank is widely expected to keep interest rates on hold. But any signals on a rate cut will be closely watched, with markets still pricing in a rate cut in September.
Chinese Yuan Sees Sharp Fluctuations After Suspected Intervention
The Chinese yuan weakened on Friday, retreating after suspected Chinese government intervention sent the currency sharply higher against the dollar on Thursday.
The pair had fallen sharply from an eight-month high on Thursday, as its steep decline sparked speculation of government intervention. The currency has been battling mounting selling pressure after a series of surprise interest rate cuts by the People’s Bank of China this week.
Doubts about a slowdown in the economic recovery also weighed on the yuan.
Japanese yen outperforms the dollar, and awaits the decisions of the Japanese central bank
The Japanese yen was among the best performing currencies this week, continuing its strong run after suspected intervention by Tokyo earlier in July boosted the currency.
The pair is down 2.4% this week – its biggest weekly decline since late April.
However, the yen’s advance was somewhat halted by US data indicating that inflation remained largely subdued in July.
The weak inflation reading came just days before a U.S. monetary policy meeting, with analysts divided over whether the central bank will have enough room to raise interest rates by 10 basis points.
Broader Asian currencies have suffered sharp losses against the dollar this week as risk appetite has waned. The Australian and New Zealand dollars have fallen by around 2% this week.
The Indian rupee pair steadied after the Federal Reserve’s intervention pulled the pair away from its record highs hit on Thursday.
The South Korean won rose 0.3%, while the Singapore dollar remained stable after the Monetary Authority of Singapore kept monetary policy unchanged.
