Feb 20 2024: Most Asian currencies edged lower on Tuesday amid ongoing worries about a slowdown in the Chinese economic recovery and the anticipation of sustained higher U.S. interest rates. Meanwhile, the dollar edged up, staying close to three-month highs.
The People’s Bank of China’s decision to cut its benchmark five-year loan prime rate by 25 basis points to 3.95%, a record low, failed to lift sentiment in Asian markets. Instead, it highlighted growing concerns about economic deceleration in Asia’s largest economy.
Although the yuan experienced slight declines after the rate cut, significant losses were tempered by a stronger-than-expected midpoint fix by the PBOC. However, the yuan remained near its weakest level in three months and approached the 7.2 level against the dollar.
The broader Asian currencies continued to reel from robust U.S. inflation data released last week, which brought the dollar close to a three-month peak. With limited cues from a U.S. holiday on Monday, the dollar index and dollar index futures each rose by 0.1% in Asian trading, buoyed by expectations of prolonged elevated U.S. interest rates in 2024.
The Japanese yen faced considerable pressure amid concerns about higher U.S. rates, slipping below the 150 level on Tuesday. Additionally, the prospect of a gradual departure from the Bank of Japan’s ultra-dovish monetary policy stance weighed on the yen.
While the Australian dollar dipped by 0.1%, the Reserve Bank of Australia’s minutes from its February meeting indicated a continued inclination toward further interest rate hikes to address stubborn inflation. However, the RBA also expressed readiness to swiftly ease monetary conditions if the Australian economy cooled too rapidly due to the pressure of high rates.
The Singapore dollar declined by 0.1%, while the South Korean won weakened by 0.3%. Meanwhile, the Indian rupee saw slight strengthening below the 83 level but remained susceptible to volatility