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Asia forex weakens on soft China data

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GDP data from China confirmed that a recovery in the country’s economy was weakening, a trend that could draw more stimulus measures from Beijing

Most Asian currencies dropped on Monday on weak economic signals from China, while the dollar stabilised as markets continued to bet over the path of U.S. interest rates.

GDP data from China confirmed that a recovery in the country’s economy was weakening, a trend that could draw more stimulus measures from Beijing.

But it also pointed to near-term weakness in the Asian economy, which in turn encouraged investors to lock in profits made on recent strength in regional currencies. Trading volumes were also somewhat muted in the wake of a Japanese market holiday.

The dollar index and dollar index futures stabilised in Asian trade following sharp decline in the past week, retreating toward the 100 level.

According to data released on Friday, U.S. consumer sentiment stayed strong in June, raising concerns that the trend could keep inflation sticky and the Federal Reserve hawkish.

But significantly softer-than-expected U.S. inflation data saw markets question just how much further the Fed could keep hiking interest rates.

The Chinese yuan was among the worst performers for the day, down 0.4 per cent after data showed that Chinese economic growth declined during Q2.

GDP rose just 0.8 per cent in the second quarter from the first, and missed expectations for growth from the same period in 2022.

The data showed that China was struggling to maintain the strong economic momentum seen in Q1, and that the government will possibly introduce more stimulus measures to support growth in the coming months. This is likely to weigh on the yuan.

But the People’s Bank of China kept medium-term lending rates steady on Monday, likely signalling a similar move for the benchmark loan prime rate (LPR) later this week. The bank had cut the LPR in June to boost growth.

Concerns over China impacted other currencies, with the Australian dollar, which has heavy trade exposure to China, shedding 0.4 per cent. The Taiwan dollar dipped 0.6 per cent, while the Malaysian ringgit led declines across Southeast Asia with a 0.6 per cent drop.

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