© Reuters.
Investing.com – Most Asian currencies fell on Monday as traders favored the dollar ahead of more key signs about US monetary policy this week, while the Chinese yuan weighed on rising expectations for a rate cut by the People’s Bank.
The yuan is sinking to its lowest level in six months
It fell 0.2 percent to a six-month low of 7.1451 per dollar, as major Chinese state-owned banks began cutting interest rates on yuan deposits. The move heralds a broader cut in the central bank’s main loan interest rate later this month, as it struggles to support economic growth.
The post-COVID recovery of the Chinese economy appears to have slowed in the past two months, as suggested by poor business activity and inflation data. This has raised expectations of further supportive measures by Beijing to support growth, and put a potential rate cut on the cards.
The yuan has suffered huge losses over this notion, and has also been pressured by growing pessimism about China’s economic recovery this year. Concerns about China have also weighed on most other Asian countries with extensive trade exposure to the country.
It lost 0.5% on Monday, while the pair fell 0.4% and 0.1%, respectively.
Fed anticipation keeps Asian markets in full swing
The broader Asian currencies fell as the markets were falling before Wednesday’s close. While the central bank is widely expected to keep interest rates unchanged after a year-long rally, markets have remained on alert for any hawkish surprises.
The focus is also on key data due on Tuesday, which will likely influence the Fed’s decision on interest rates. While US inflation has moderated from a 40-year high in 2022, it is still expected to remain well above the Fed’s annual target of 2% in May.
High inflation is expected to keep US interest rates higher for longer, putting pressure on Asian currencies even if the Federal Reserve decides to halt its rate hike cycle this week.
The dollar held steady in Asian trade, adding 0.1% each.
The Bank of Japan is on tap, but there were no expected surprises
It fell 0.2% as data showed the country slowed in May.
With recent data also showing a decline, the Bank of Japan is unlikely to change its ultra-loose policy when it does.
A dovish view of the Bank of Japan is expected to keep the yen under pressure in the coming months, as the gap between domestic and external rates widens.