On Monday, markets struggled to find a direction for the majority of Asian currencies as they awaited additional clues regarding raising the U.S. debt ceiling. Meanwhile, the dollar declined as Federal Reserve Chair Jerome Powell provided a less hawkish outlook than was anticipated.
After Powell stated on Friday that tightening credit conditions in the United States meant that the Fed might not need to raise interest rates too much, regional currencies experienced some relief. The dollar suffered significant losses as a result, which continued into Asian trade on Monday.
In response to growing expectations that the Federal Reserve will put an end to its rate hike cycle in June, the dollar index and the dollar index futures both lost about 0.2 percent. The prices of Fed Fund futures indicate that a June pause is nearly 83% likely.
But a weaker dollar did little to help Asian currencies because people were still worried about the US debt default. This week, President Joe Biden and Republican lawmakers are expected to continue discussing raising the debt ceiling.
The day’s worst performer was the Chinese yuan, which lost 0.2 percent and fell back toward its near-six-month low. The People’s Bank of China’s stronger daily midpoint fix and the potential improvement in Sino-U.S. relations did little to support the currency.
On Monday, the PBOC maintained its historic low benchmark loan prime rate. However, wagers that the PBOC might cut rates as soon as June were fueled by a variety of subpar economic data for April.
This provided a negative outlook for the yuan, which is already experiencing pressure as a result of the widening gap that exists between interest rates in China and those in the United States. The yuan’s breaking of the mentally significant 7 level last week is supposed to welcome more misfortunes in the cash.
The general Asian currencies were mixed. The South Korean won gained 0.6% as a result of a less hawkish Fed outlook, while the Australian dollar gained 1%.
The possibility of a pause in U.S. interest rate hikes also contributed to a 0.2% increase in the Japanese yen. However, the Bank of Japan’s signal that its ultra-dovish monetary policy will not change soon had caused the currency to experience significant losses over the previous two weeks.
Data released on Monday revealed an unexpected drop in core machinery orders through April, further underscoring the bleak picture that economic readings continue to paint of the Japanese economy.
The Thai baht fell 0.2%, hit by vulnerability over the development of another administration after the supportive of Majority rule resistance crushed the military-moved junta in a political decision last week.