Asia FX muted as dollar dips on recession fears; yen surges to near 7-mth high By Investing.com

Most Asian currencies moved in a narrow range on Monday, taking little advantage of the dollar’s weakness amid growing concerns about slowing economic growth in the United States.

The Japanese yen was an outlier, rising sharply on safe-haven demand and as the prospect of a Bank of Japan interest rate hike supported the currency.

Other units, such as the Chinese yuan, rose sharply, although this was mostly driven by a stronger-than-expected midpoint from the central bank.

Sentiment towards regional markets was hurt by the ongoing sell-off in risk-driven assets, as a series of weak economic readings from the US raised concerns about slowing growth and largely offset optimism about lower interest rates.

Japanese Yen Rises on Safe-Haven Demand

The Japanese yen was the best performer in Asia on Monday, with the pair falling 1.4% to 144.53 yen – its weakest level since mid-January.

The yen extended recent gains against the dollar after the Bank of Japan raised interest rates last week and said it plans to raise rates further this year amid some improvement in inflation and spending.

Minutes of the Bank of Japan’s June meeting, released earlier on Monday, also showed an unexpectedly hawkish stance from the BOJ.

This coincided with data showing a sharp recovery in Japanese services sector activity, which also indicated some resilience in the economy.

Dollar Weak Amid Recession Fears, Rate Cut Bets

Gold and silver futures fell 0.3% each in Asian trading and hit their lowest levels in four and a half months.

The US dollar has not seen much safe-haven demand as deteriorating economic conditions in the US have prompted traders to start pricing in the possibility of further interest rate cuts by the US Federal Reserve.

Data showed traders are now pricing in a 74% chance that the Fed will cut interest rates by 50 basis points in September, compared with previous bets on a 25 basis point cut.

The central bank is expected to cut interest rates by 100 basis points this year amid concerns about slowing economic growth. This scenario bodes ill for the dollar and signals some strength in Asian currencies.

But weaker risk appetite led most Asian currencies to fall on Monday. The Australian dollar was down 0.2 percent ahead of Tuesday’s central bank meeting, where the central bank is widely expected to keep interest rates on hold after recent data showed inflation slowed slightly.

The Chinese yuan fell 0.3% to a six-month low, with much of the strength coming from a stronger-than-expected midpoint interest rate hold by the People’s Bank of China. The central bank’s intervention in currency markets was also seen in July, as a series of weak Chinese economic readings hurt the yuan.

But on Monday, the country’s services sector showed some resilience.

The South Korean won rose 0.2%, while the Indian rupee remained near record highs.