© Reuters.
Investing.com – Most Asian currencies fell on Thursday, while the dollar hit a two-month high as uncertainty about raising the U.S. debt limit and avoiding a default sent investors shunning risk-driven assets.
The deteriorating sentiment towards China has also weighed on regional currencies, amid reports that the country is facing a resurgence of COVID-19 cases, which could peak by late June.
It fell 0.2% to its lowest level in nearly six months, pushing below level 7 after the breakout last week. And fears of a renewed outbreak of the new Corona virus (Covid) added to concerns about slowing economic growth in the country, after a series of weak readings for the month of April.
The deterioration of relations between Beijing and Washington has also put pressure on the yuan.
Concerns about China spilled over into broader Asian markets, with a decline of 0.2% as data confirmed the island nation’s first quarter, in part due to slowing Chinese demand.
The decline eased 0.2%, as it was also pressured by a rise in its trade exposure to China, while it fell 0.5%. The won also came under pressure by keeping interest rates steady for the third month in a row, with some traders preparing for a possible rate cut later this year.
Broader Asian currencies fell as fears of a US debt default persisted, with Democratic and Republican lawmakers making little progress toward raising the debt limit.
The latest blow to sentiment came from the ratings agency in default.
It fell 0.2 percent to its lowest level in six months against the dollar, while it fell 0.1 percent and traded near its lowest level in two months.
The greenback benefited from increased safe-haven demand, while traders also dumped Treasuries in favor of the greenback. The pair rose 0.2% each in Asian trade, and was hovering at two-month highs.
Mixing signals about monetary policy also supported the US currency, as the Federal Reserve’s May meeting showed that interest rates are likely to remain high for longer.
It showed that the markets were pricing in a greater than 60% chance that the Federal Reserve would keep interest rates in June. But a growing number of participants are also seeking the prospect of another rate hike.
The weakening of risk appetite and the rise in US interest rates indicated more pressure on Asian currencies in the coming months, and the continuation of the trend that we witnessed until 2022.