© Reuters.
Investing.com – Most Asian currencies fell on Tuesday as markets awaited more signals about U.S. monetary policy, with China’s yuan trading near a seven-month low after the People’s Bank cut lending rates.
The dollar stabilized in Asian trading after the US market holiday on Monday, with trading stable while adding 0.3%. The focus this week is largely on the run-up to Congress on Wednesday.
The yuan is slipping due to the benchmark loan prime rate, and the bleak economic outlook
It fell 0.2 percent to 7.1744 per dollar, trading just shy of its lowest level since late November.
The People’s Bank of China (PBOC) cut its benchmark (LPR) index by 10 basis points, as was widely expected, as Beijing struggles to support a slowing economic recovery.
The move was largely sent by the People’s Bank of China, given that the central bank cut short- and medium-term lending rates last week. The rate cuts come in the form of a series of weak economic readings for April and May that cast doubt on China’s recovery this year.
Several major investment banks, most recently Goldman Sachs (NYSE: ), have also lowered their forecasts for Chinese economic growth this year, stating that the current stimulus measures will not be enough to boost the economic recovery.
Concerns about China weighed on the broader Asian currencies, which fell 0.4%, while losing 0.2%.
It was the worst performer of the day, down 0.7% after showing that the bank is still considering a pause in the rate-raising cycle, despite the surprise hikes in May and June.
It rose slightly from its lowest levels in seven months against the dollar, amid continued speculation about whether the government will intervene again in the currency markets to support the yen.
The Japanese currency faced renewed pressure after the dovish signals from the Bank of Japan, which plans to maintain its ultra-loose policy for the time being.
Fed concerns continue ahead of Powell’s testimony
Fed Chairman Powell is expected to provide more signals about US monetary policy when he testifies before Congress on Wednesday. Markets remained wary of any more optimistic signals about interest rates.
While the Fed did last week, the central bank still expects an even higher rate hike this year, which could lead to at least two more hikes in US interest rates.
Such a scenario bodes ill for Asian currencies, as it widens the gap between risky and low-risk returns.
