Investing.com – Most Asian currencies weakened on Monday, with the Japanese yen testing a new 34-year low and increased safe-haven demand following Iran’s strike on Israel sending the dollar to a more than five-month high.
The dollar also strengthened on the prospect of higher, longer-term U.S. interest rates following strong inflation numbers and hawkish signals from the Federal Reserve last week.
Sentiment towards Asia has further deteriorated due to China’s weak economic performance. Disinflation in China worsened in March, while exports and imports fell short of expectations for the month.
The Japanese yen is weak, the USDJPY pair exceeded 153
The yen was the day’s worst performer, rising 0.3% to a 34-year high of 153.77. The currency, which typically benefits from increased safe-haven demand, has been largely supplanted by gold and the dollar as a risk-averse trade.
The yen’s weakness has traders wary of any potential Japanese government intervention in currency markets after repeated warnings from government officials in recent weeks.
Levels above 153 USDJPY attracted a record number of interventions from the Japanese government in 2022, leading to a sharp pullback in the currency pair.
The Japan report will also be released later this week to provide more insight into the economy.
Dollar hits 5.5-month high on interest rate concerns and Iran, Israel nervousness
And it stabilized in Asian trading after rising to a 5.5-month high on Friday.
The dollar strengthened due to demand for safe havens after Iran launched a large-scale missile and drone attack on Israel.
But the damage from the strike was minimal, and Iran also signaled that it had completed its attack on Israel. Israeli ministers also reportedly said they were not considering immediate retaliation for the strike.
The dollar was also supported by rapidly falling bets that the Fed will cut interest rates in the first half of 2024. This happened against the backdrop of high inflation rates for March.
Weak risk appetite and higher, longer-term US rates weighed on most Asian currencies. The Chinese yuan pair stands still after the People’s Bank left medium-term lending rates unchanged.
The Australian dollar rose 0.4%, recovering from falling to two-month lows on Friday, while the South Korean won rose 0.3%.
The Indian rupee was fragile, with the pair falling from levels close to record highs, while the Singapore dollar pair moved sideways.