Investing.com – Most Asian currencies held in tight ranges on Thursday and suffered overnight losses as minutes from the recent Federal Reserve meeting strengthened the dollar amid growing concerns about higher, longer-term interest rates.
Sentiment towards most Asian markets was also hit by the prospect of a renewed trade war between the US and China after China retaliated against higher US tariffs on key business sectors. Chinese military exercises near Taiwan have also spooked traders.
Dollar Strengthens After Fed Minutes Fearing Rate Hike
And both steadied in Asian trade after strong gains overnight.
Minutes from the Fed meeting in late April showed that policymakers were increasingly concerned about persistent inflation, and that some Fed officials were also willing to raise rates further to bring inflation down.
The minutes were preceded by a series of separate messages from Fed officials that persistent inflation would likely delay any potential rate cuts.
While it remains unlikely that the Fed will continue raising interest rates, markets are now pricing in a greater likelihood that the central bank will keep rates high for longer – a scenario that does not bode well for risk-minded Asian markets.
Against this backdrop, the dollar rose and traded at a one-week high.
Most Asian currencies fell sharply overnight against the US dollar and stabilized somewhat on Thursday. The Australian dollar rose 0.2% after falling 0.7% on Wednesday. Purchasing Managers’ Index data showed some cooling.
The Japanese yen pair was little changed on Thursday after rising to nearly 157 yen in overnight trading. PMI data for Japan showed growth for the first time in 11 months.
The South Korean won fell 0.1% after rates remained steady as expected, but it raised its economic growth forecast for the year slightly.
The Singapore dollar fell 0.1% as data confirmed first-quarter growth was slightly slower than expected.
Chinese Yuan Weak, USDCNY Returns to 6-Month High
The Chinese yuan pair rose slightly on Thursday and was trading just below a six-month high.
Beijing was seen banning some US firms from engaging in China-related trade activities and also banning some arms shipments to Taiwan. The move was seen as a response to higher US tariffs on key Chinese industries, which will take effect on August 1.
China has also conducted military exercises near Taiwanese territory, raising concerns about rising tensions in the area.