Investing.com — Asian currencies were mostly fragile on Monday, with the dollar holding near two-month highs, while a weak Japanese yen sparked caution about potential intervention measures by Tokyo.
Sentiment towards regional markets also declined due to fears of a trade war between China and the European Union, after Chinese officials warned of retaliatory measures against European tariffs on Chinese electric cars.
Markets were also reeling from stronger-than-expected US PMI readings, sparking heavy flows into the dollar and an exit from risk-driven assets.
JPY is weak under intervention watch with USDJPY approaching 160
The yen was the biggest point of focus among Asian currencies on Monday, as the currency pair, which measures the amount of yen needed to buy one dollar, reached within striking distance of 160 yen.
This level was the highest for the pair since 1986, and attracted large amounts of government intervention in currency markets in May, which saw USD/JPY fall to a low of 151.
The yen’s recent weakness has sparked warnings from several senior Japanese officials about further intervention. Masato Kanda, the currency’s chief diplomat, said the government “will intervene 24 hours a day if necessary.”
His comments prompted some strength in the yen, with USDJPY falling to 159.7 yen.
Chinese Yuan and Asia FX under pressure from EU tensions
The Chinese yuan pair settled at a seven-month high on Monday, as the yuan has taken a hit in recent weeks due to strained relations between China and the European Union.
Chinese officials said over the weekend that a trade war with the European Union is possible in the face of tariffs on imports of Chinese electric vehicles. The ministers of Germany and China are scheduled to meet this week.
Concerns over the trade war kept traders away from riskier currencies, sparking weakness in most Asian units. The Australian dollar pair fell 0.1%, while the South Korean won pair rose 0.1%.
The Singapore dollar pair rose slightly, while the Indian rupee pair fell 0.1% but remained within sight of recent record highs.
The dollar is strong, and PCE inflation is expected
Both rose slightly in Asian trade and were at their highest levels since early May.
The dollar received support from stronger-than-expected Purchasing Managers’ Index (PMI) readings, raising concerns that the resilient US economy will give the Federal Reserve more room to keep interest rates high.
The focus is now on key data scheduled for release on Friday. This reading is the Fed’s preferred measure of inflation and is likely to influence interest rate expectations.
