Investing.com – Most Asian currencies fell on Friday and suffered sharp losses against the dollar as hawkish signals on inflation and interest rates caused traders to further revise expectations for rate cuts in 2024.
Sentiment for Asian markets was also dented by signs of a renewed trade war between the US and China, while the People’s Liberation Army held expanded military exercises near Taiwan, raising tensions with Taipei.
Dollar hits 10-day high as bets on September rate cuts ease
But the biggest source of pressure on Asian currencies was the recovery in the dollar, which stabilized at a 10-day high on Friday.
Minutes from the Federal Reserve’s late April meeting, coupled with several hawkish comments from Fed officials, showed that investors have become more wary of persistent inflation, which in turn could delay any plans by the central bank to cut interest rates.
This led traders to largely overestimate expectations for a September interest rate cut.
Published traders put the stock at almost equal probability of decline and hold – about 46% – in September. Earlier expectations showed that the probability of a reduction was more than 50%.
Japanese yen weakens, soft CPI brings no relief
The Japanese yen rose 0.1% on Friday to a more than three-week high, extending its rebound from immediate post-government intervention lows seen earlier in May.
The yen received little relief from data that showed inflation fell as expected in April as spending remained weak. The data raised further questions about how much room the Bank of Japan has to tighten policy further, creating more headwinds for the yen.
Chinese yuan losses limited by stronger PBOC correction
The Chinese yuan rose 0.05% on Friday, with further yuan weakness capped by a substantially stronger midpoint fix from the People’s Bank of China.
The stronger improvement comes as a escalating trade war with the US, doubts over additional stimulus measures and rising tensions with Taiwan have led to a wave of pressure on the yuan.
The USDCNY pair was close to a six-month high.
Asian currencies have generally retreated. The South Korean won rose 0.3%%, while the Singapore dollar rose 0.1%.
The Australian dollar fell 0.2%. Most regional currencies suffered sharp weekly losses as the prospect of high, long-term US interest rates weighed on more pressure.