Most Asian currencies fell on Friday as concerns about further trade tensions between the United States and China weighed on sentiment, with the dollar benefiting from safe-haven demand even as bets on interest rate cuts persisted.
The dollar recovered some of its recent losses, rising 0.1 percent in Asian trade, and was on track for its first weekly gain in three. Thursday’s and Friday’s gains also saw the dollar rebound from near four-month lows as markets maintained bets that the Federal Reserve will start cutting interest rates from September.
While the idea has boosted Asian currencies in recent sessions, they retreated on Friday amid concerns about deteriorating relations between the United States and China. Uncertainty over the U.S. presidential race, amid growing calls for President Joe Biden to abandon his re-election bid, also kept risk appetite subdued.
China’s yuan nears eight-month low amid trade tensions, growth concerns
The Chinese yuan fell on Friday, with the pair approaching levels last seen in November 2023.
The yuan was weighed down by recent reports that the United States is considering tougher trade sanctions on China’s technology and chip sectors – a move that could trigger retaliatory measures from Beijing.
But even before that, the currency was weighed down by data showing that China’s economy grew less than expected in the second quarter.
This has put the spotlight on the Third Plenary Session of the Communist Party of China. While senior Chinese officials have promised more measures to support growth, they have not provided any specific details on what these measures will be.
Japanese Yen Falls After Suspected Intervention
The Japanese yen fell on Friday, reversing course after a sharp rise against the dollar earlier this week.
The pair rose to above 157 yen, after falling to around 155 yen earlier this week. The sharp rise in the yen’s value has sparked speculation that the Japanese government has intervened in currency markets, although officials have given few indications on the matter.
Japan’s inflation reading came in lower than expected in June, raising uncertainty over whether the Bank of Japan will have enough freedom to raise interest rates further at its meeting later this month.
Some analysts expect the Bank of Japan to raise interest rates by 10 basis points.
Broader Asian currencies fell as risk appetite remained weak. The South Korean won rose 0.2%, while the Singapore dollar rose 0.1%.
The Australian dollar pair fell slightly, while the Indian rupee pair recorded a record high of more than 83.7 rupees.
India’s persistent trade deficit has been a major drag on the rupee, providing little support to the currency despite continued optimism about the Indian economy.
