© Reuters.
Investing.com – Most Asian currencies fell on Friday as weak Chinese inflation data added to concerns about slowing growth in Asia’s largest economy, while the dollar stabilized after heavy losses overnight as the Federal Reserve meeting approached.
It fell 0.1% and hovered around a six-month low after data showed that China contracted in May from the previous month, while falling at its highest pace in seven years – the end of the yuan’s devaluation shock.
The data came after a string of weak economic readings from China in the past two weeks, suggesting that the country’s post-COVID economic recovery was largely running out of steam.
More Chinese stimulus on tap, but the yuan is suffering
Weak economic trends from China have raised expectations that Beijing will roll out more supportive measures in the coming months. China’s largest state-owned bank cut interest rates on yuan deposits this week, which could herald a broader interest rate cut by the People’s Bank.
But this trend points to more headwinds for the yuan, especially if the gap between domestic and external interest rates widens.
The Chinese government may also intentionally keep the yuan lower in order to support export earnings and domestic spending. But the weak inflation data shows that Chinese consumers have kept their fiscal constraints tight so far.
Weakness in China spilled over into other Asian markets, though the broader losses were somewhat muted as an unexpected rally in the week raised expectations of a pause in the Fed’s rate-hiking cycle.
It decreased by 0.2% while flat. It fell by 0.2% as the markets weighed down the deteriorating economic trends in the country against the prospect of an interest rate hike by the Reserve Bank of Australia.
It settled after as expected on Thursday.
The dollar stabilized after falling overnight, and the Federal Reserve paused in focus
The dollar stabilized on Friday after heavy losses overnight, as data showed a rise in US jobless claims over the past week. Both rose about 0.1% in Asian trade.
Weak employment data raised hopes that the Fed will halt its rate hike cycle when it does, given that other economic indicators also indicated a slowdown in the US economy. While such a move could bring some near-term relief to Asian currencies, gains are expected to be limited as US interest rates remain elevated for a longer period.
The deteriorating economic trends in China are also expected to reduce the attractiveness of most Asian units, given their heavy commercial exposure to the country.