© Reuters
Investing.com – Most Asian currencies fell on Monday amid growing uncertainty about U.S. monetary policy and interest rate hikes, with China’s yuan weakening ahead of a widely expected rate cut this week.
Markets were awaiting fresh signals about a US rate hike from testimony from Federal Reserve Chairman Jerome Powell on Wednesday, after the Fed paused its rate-raising cycle but signaled at least two more hikes this year.
The dollar saw some strength in Asian trade, with gains of around 0.1% each.
This also saw most Asian units extend the losing streak seen since last week, as markets kicked off the Fed in July.
The Chinese yuan falls before the loan prime rate cut
It fell 0.3% and was among the worst-performing Asian currencies on Monday as markets priced in a possible cut to the benchmark on Tuesday.
The People’s Bank of China is widely expected to cut its benchmark interest rate after cutting short- and medium-term interest rates last week, as Beijing struggles to support a slowing economic recovery.
Goldman Sachs (NYSE: NYSE) opened for China on Sunday, joining a cadre of other investment banks in downgrading its forecasts for China’s economic recovery this year. The move follows a series of weaker-than-expected Chinese economic readings for April and May, which raised doubts about the country’s post-COVID economic recovery.
The interest rate cut is expected to have a significant impact on the yuan, especially with the widening gap between domestic and US interest rates.
Markets also took a few signals from a meeting between high-level US and Chinese ministers over the weekend, with both sides reporting little progress toward defusing tensions between the world’s largest economies.
Powell testimony, Fed speakers weigh in on Asian currencies
Fears of higher US interest rates have kept the broader Asian currencies on edge, especially after the Federal Reserve raised its forecast for peak US interest rates this year.
And the dollar stabilized at its lowest level in seven months, while the dollar fell by 0.5%. The interest rate-sensitive index fell 0.4%, while losses were led across Southeast Asia.
Powell is scheduled to testify before Congress on Wednesday, and he will likely provide more clues about the Fed’s expectations for higher interest rates this year. A series of other federal speakers are also on tap this week.
