Investing.com – Most Asian currencies were fragile on Monday as the dollar steadied near two-month highs and weakness in the Japanese yen raised caution about potential intervention from Tokyo.
Sentiment towards regional markets also eased fears of a trade war between China and the European Union after Chinese officials warned of retaliation against European tariffs on Chinese electric vehicles.
Markets were also shaken by a stronger-than-expected performance in the US Purchasing Managers’ Index, which prompted large inflows into the dollar and out of risk assets.
Japanese yen weak, awaiting intervention as USDJPY approaches 160
The yen was the most watched among Asian currencies on Monday as its pair, which measures the amount of yen needed to buy one dollar, hovered around 160 yen.
The pair’s level was the highest since 1986 and attracted significant government intervention into foreign exchange markets in May, causing USDJPY to fall to 151.
The yen’s recent weakness has prompted warnings from several major Japanese officials about the need for further intervention. Top currency diplomat Masato Kanda said the government would “intervene 24 hours a day if necessary.”
His comments contributed to some strengthening of the yen: the USDJPY pair fell to 159.7 yen.
Chinese yuan and Asian currency under pressure from EU tensions
The Chinese yuan pair stabilized at a seven-month high on Monday as the yuan has been hit by deteriorating relations between China and the EU in recent weeks.
Chinese officials said over the weekend that a trade war with the EU is possible over import tariffs on Chinese electric vehicles. Ministers from Germany and China were also due to meet this week.
Concerns over a trade war have kept traders away from risky currencies, causing weakness in most Asian currencies. The Australian dollar fell 0.1%, while the South Korean won rose 0.1%.
The Singapore dollar rose slightly while the Indian rupee fell 0.1% but remained near recent record highs.
Dollar strong, PCE inflation expected
Both indexes rose slightly in Asian trade to reach their highest levels since early May.
The dollar strengthened on stronger-than-expected PMI readings, raising concerns that a resilient U.S. economy will give the Federal Reserve more room to keep rates high.
Attention has now turned to key data due this Friday. These indicators are the Fed’s preferred indicator of inflation and will likely be taken into account when forecasting interest rates.