© Reuters.
Investing.com – Most Asian currencies fell on Thursday as weaker-than-expected Chinese data raised further concerns about slowing growth in the region’s largest economy, while the dollar steadied after a mixed reading of consumer inflation.
It fell to a two-month low after data showed that Chinese barely grew in April, while falling to the weakest level since the peak of the COVID-19 pandemic in 2020.
Thursday’s reading, along with disappointing earlier this week, showed that economic activity in China was struggling to rebound despite stimulus measures and post-COVID reopenings.
This trend bodes ill for other Asian currencies that have high trade exposure to China, as the country’s economic recovery cools. It fell 0.4% after the reading, while losing 0.2%.
It was flat on Thursday after a sharp rise in overnight trading after a mixed data read.
This caused the dollar to lose some ground in overnight trading, although the greenback was largely flat on Thursday amid uncertainty about the path of US monetary policy.
It moved less than 0.1% in either direction.
US Consumer Price Index data showed that inflation eased slightly in April, but remained well above the Fed’s target range. But inflation continued to rise, which indicates that US interest rates are likely to remain high for a longer period.
While markets are widely betting that the Federal Reserve has finished its rate-hiking cycle this year, it has shown that markets have scaled back their expectations for a rate cut this year, following the CPI data.
Rising US interest rates bode ill for Asian currencies, as the gap between risky and low-risk returns narrows. This trend has hit Asian currencies through 2022 and is likely to cap the recovery this year.
However, a few Asian units still saw some support on Thursday. It rose slightly amid continued expectations of the Reserve Bank raising interest rates. The relative strength of the labor market gives it enough room to continue raising interest rates, while fighting runaway inflation.
This was also supported by a better-than-expected first quarter of 2023, indicating that higher inflation and interest rates had a limited impact on economic growth.