Markets were awaiting fresh signals on U.S. rate hikes from a testimony from Fed Chair Powell on Wednesday, after the Fed halted its rate hike cycle but flagged at least two further hikes this year
Majority of Asian currencies dropped on Monday amid rising uncertainty over U.S. monetary policy and interest rate hikes, with the Chinese yuan pulling back ahead of a widely anticipated rate cut this week.
Markets were waiting for fresh signals on U.S. rate hikes from a testimony from Fed Chair Jerome Powell on Wednesday, after the Fed halted its rate hike cycle but flagged at least two further hikes this year.
The dollar strengthened in Asian trade, with the dollar index and dollar index futures up around 0.1 per cent each.
This also saw majority of Asian units stretch a losing streak witnessed since last week, as markets started pricing in a high probability of a rate rise from the Fed in July.
The Chinese yuan dropped 0.3 per cent and was among the worst-performing Asian currencies on Monday as markets priced in a possible cut in the benchmark loan prime rate on Tuesday.
The People’s Bank of China is broadly anticipated to cut its benchmark rate after cutting short as well as medium-term rates during the past week, as Beijing struggles to bolster a slowing economic recovery.
Goldman Sachs cut its 2023 GDP outlook for China on Sunday, joining other investment banks in cutting their outlook for a Chinese economic recovery this year. The move comes after a series of weaker-than-expected Chinese economic data for April and May raised doubts over a post-covid economic recovery in the country.
An interest rate cut is anticipated to weigh heavily on the yuan, particularly as the difference between local and U.S. interest rates broadens.
Markets also took few hints from a meeting between top-level U.S. and Chinese ministers over the weekend, as both sides flagged little headway towards reducing tensions between the world’s biggest economies.
Concerns of increasing U.S. interest rates kept wider Asian currencies on the back foot, particularly after the Fed raised its prediction for peak U.S. interest rates this year.