Asia FX falls amid Fed uncertainty, Chinese yuan hit by rate cut bets
The currencies in Asia experienced a decline on Monday due to increased ambiguity regarding the U.S. monetary policy and interest rate hikes. In particular, the Chinese yuan decreased in value in anticipation of an anticipated rate reduction this week.
Traders were eagerly anticipating any new signals about potential interest rate increases by the U.S. Federal Reserve based on the testimony of its Chairman, Jerome Powell, which was scheduled for Wednesday. This comes after the Fed stopped raising rates for the time being, but indicated that there could still be two more hikes later in the year.
During the Asian trading session, the US currency exhibited some power, with both the euro and yen experiencing an increase of approximately 0.1%.
Furthermore, many Asian stocks continued to decline since last week. This was due to the start of markets following the Federal Reserve announcement in July.
"Yuan Drops Before Prime Rate Cut In China"
On Monday, the currency dropped by 0.3%, which put it in the category of having one of the poorest performances among the other Asian currencies. This decrease is due to the expectations of a potential deduction in the benchmark on Tuesday, which the markets have already accounted for.
Many predict that the People's Bank of China will reduce its benchmark rate following the recent decrease of short and medium-term rates. This comes as Beijing faces difficulties in strengthening the sluggish economic growth.
Goldman Sachs, an investment bank listed on the New York Stock Exchange, reduced its prediction for China's economic recovery this year on Sunday. This decision follows several underwhelming economic reports for the months of April and May in China, which casts doubt over whether there will be a successful economic bounceback for the country after the impact of COVID-19. Many other investment banks have similarly lowered their outlook on China's economic recovery.
It is predicted that the yuan will be greatly impacted by a reduction in interest rates, particularly as the difference between interest rates in China and the United States becomes greater.
The financial markets didn't get much direction from a gathering between prominent officials from the United States and China over the weekend. They both acknowledged that there was insignificant advancement towards calming down the strained relations between the two biggest economies in the world.
Fed Speakers And Powell Press Asian Currencies
Concerns over an increase in the interest rates in the United States have resulted in general unease among Asian currencies, particularly following the Federal Reserve's announcement of an elevation in the prediction for the maximum U.S. interest rates in 2021.
The currency was stagnant and near its lowest levels in seven months when compared with the US dollar. Meanwhile, another currency decreased by 0.5%. As for the exchange rate-sensitive currency, it experienced a decline of 0.4%, and the currency of Southeast Asia heavily suffered losses.
Powell is scheduled to appear before Congress on Wednesday and may give more indications about the Fed's prediction of raising interest rates later this year. Additionally, a series of other Federal Reserve spokespeople are expected to speak this week.
