Most Asian Currencies Struggle as Dollar Holds Near Two-Month Highs
Asian currencies faced pressure on Monday as the dollar remained close to two-month highs. The Japanese yen’s weakness raised concerns about potential intervention by Tokyo, adding to the overall cautious sentiment.
Trade War Fears and Strong U.S. Data Weigh on Markets
Investor sentiment in regional markets was further dampened by fears of a trade war between China and the European Union. Chinese officials have threatened retaliatory measures against European tariffs on Chinese electric vehicles. Additionally, stronger-than-expected U.S. purchasing managers index (PMI) readings fueled heavy flows into the dollar, pulling investors away from risk-driven assets.
Japanese Yen Under Scrutiny as Intervention Looms
The yen was a major focus among Asian currencies on Monday, as the USD/JPY pair approached 160 yen, its highest level since 1986. This level had previously triggered significant government intervention in May, pushing the pair down to as low as 151 yen.
The yen’s recent weakness led to warnings from several key Japanese officials about potential intervention. Top currency diplomat Masato Kanda stated that the government would “intervene 24 hours a day if necessary,” which temporarily strengthened the yen, bringing the USD/JPY pair down to 159.7 yen.
Chinese Yuan and Asian Currencies Under Pressure from EU Tensions
The Chinese yuan’s USDCNY pair held steady at a seven-month high on Monday, following weeks of decline due to deteriorating relations between China and the EU. Over the weekend, Chinese officials indicated that a trade war with the EU was possible if import tariffs on Chinese electric vehicles were imposed. German and Chinese ministers were scheduled to meet this week to discuss the situation.
Fears of a trade war made traders wary of risk-heavy currencies, leading to weakness across most Asian currencies. The Australian dollar’s AUD/USD pair fell by 0.1%, and the South Korean won’s USD/KRW pair rose by 0.1%. The Singapore dollar’s USD/SGD pair saw a slight increase, while the Indian rupee’s USD/INR pair fell by 0.1% but remained near recent record highs.
Dollar Strengthened by Strong U.S. Data, Awaiting PCE Inflation
The dollar index and dollar index futures both rose slightly in Asian trade, reaching their highest levels since early May. The greenback was buoyed by robust PMI readings, raising concerns that a resilient U.S. economy might allow the Federal Reserve to keep interest rates elevated for longer.
All eyes are now on the key PCE price index data, due this Friday. As the Fed’s preferred inflation gauge, this reading is expected to play a significant role in shaping the outlook for interest rates.
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