Investing.com-- Most Asian currencies weakened on Monday while the dollar firmed after U.S. President Donald Trump said he will impose tariffs on metal imports, with the Japanese yen falling the most among its peers.
The Chinese yuan also weakened as January inflation data underwhelmed, pointing to little improvement in the country’s persistent deflationary trend.
The dollar firmed in Asian trade, recouping all of last week’s losses as markets braced for more protectionist measures from Trump. The U.S. president also said he will impose reciprocal tariffs on major trading partners.
Trump had last week imposed a 10% duty on China, drawing ire and retaliation from Beijing. This kept sentiment towards regional markets weak, as traders braced for a renewed global trade war.
Trump announces 25% tariffs on steel, aluminum; dollar firms
The dollar index and dollar index futures both rose 0.3% in Asian trade, recouping all of their losses from last week.
The greenback was boosted by Trump stating that he will impose 25% tariffs on all U.S. imports of aluminum and steel- a move that stands to impact South Korea and Japan the most.
Trump also reiterated plans to bring import duties in line with those charged by major U.S. trading partners on U.S. exports. The European Union has been a major target of his criticism over unfair trade duties.
Trump’s comments boosted the dollar, as traders bet that the tariffs- which will be borne by U.S. importers- will underpin domestic inflation.
Analysts and Federal Reserve officials have warned that tariff-related inflation could keep interest rates high in the long term.
Focus this week is also on upcoming U.S. consumer price index inflation data.
Chinese yuan weakens on soft inflation
The Chinese yuan’s USD/CNY pair- which is particularly sensitive to Trump’s tariffs- rose 0.3% on Monday.
The currency was also pressured by softer-than-expected inflation data released on Sunday, which showed CPI inflation grew less than expected, while producer price index inflation continued to shrink.
The reading underscored persistent weakness in the Chinese economy, which is now set for even more pressure from Trump’s trade tariffs.
But this scenario also gives Beijing more impetus to dole out more stimulus measures, especially fiscal steps aimed at boosting consumption.
Broader Asian currencies fell on concerns over U.S. trade tariffs. The Australian dollar’s AUD/USD fell 0.2%.
The South Korean won’s USD/KRW pair rose 0.1%, while the Singapore dollar’s USD/SGD pair rose 0.2%.
The Indian rupee’s USD/INR pair hit a record high of over 88 rupees, as the rupee reeled from an interest rate cut by the Reserve Bank of India (NSE:BOI) on Friday.
Japanese yen slides from 2-mth high
The Japanese yen was the worst performer among Asian currencies, with the USD/JPY pair rising 0.4% from its lowest level since early-December.
The yen had firmed sharply last week as a mix of strong wage data and hawkish Bank of Japan comments saw traders bet on more interest rate hikes by the central bank in the coming months. The BOJ had hiked rates by 25 basis points in January.
But softer-than-expected current account data- which showed a sharp drop in Japan’s current account surplus, took some steam out of the yen.