Investing.com-- Most Asian currencies weakened on Monday as the dollar hovered near a two-year high, while the Chinese yuan dropped to a 17-year low, slipping further after breaching a key psychological level in the previous session.
Comments from the U.S. Federal Reserve officials over the weekend also weighed on regional currencies. They said that the central bank's efforts to control inflation are not yet complete but emphasized the importance of avoiding harm to the labor market while pursuing that goal.
The US Dollar Index was 0.1% lower during Asian trading, yet it remained close to a two-year high. The greenback has consistently hovered near this level since reaching it last month. The US Dollar Index Futures also saw a slight decline.
Chinese yuan hits lowest since 2008 even as PBoC provides support
The Chinese yuan’s onshore pair USD/CNY climbed 0.5% to 7.3648 yuan on Monday, its highest level since early 2008.
This follows the yuan’s slide past 7.3 per dollar on Friday, driven by economic challenges and a widening yield gap with the U.S.
In order to counter fears of further depreciation, the People’s Bank of China (PBOC) reaffirmed its commitment to supporting the yuan on Monday, setting its daily reference rate stronger than the critical 7.2 per dollar level.
The PBOC set the yuan's midpoint rate at 7.1876 per dollar, allowing the currency to trade within a 2% band around this level. This marked a slight strengthening of 2 pips compared to the previous setting.
December’s Caixin services activity data released on Monday failed to provide any support to the yuan, despite recording its fastest growth in seven months.
Markets are holding out for more clarity on Beijing’s plans for stimulus measures in 2025. Recent reports suggested that the country will ramp up fiscal spending to support economic growth, but are still looking out for official numbers.
Focus this week will be on key inflation data for December, which is likely to factor into expectations for more stimulus in the country.
Strong dollar pressures Asia FX; US jobs data, Fed minutes awaited
The dollar has continued to put downward pressure on Asian currencies, as global uncertainty due to incoming U.S. president Donald Trump, and prospects of rates remaining higher for longer have supported the greenback.
Markets are now awaiting Minutes for the Federal Reserve’s Dec 17-18 meeting due on Wednesday, and December jobs report is due on Friday.
The Japanese yen’s USD/JPY pair fell 0.3% despite data showing that the country’s services sector grew for the second consecutive month in December, driven by strong demand and ongoing business expansion.
The Australian dollar’s AUD/USD inched 0.2% higher, while the Singapore dollar’s USD/SGD pair was largely unchanged.
The Thai baht’s USD/THB pair slipped 0.6%, while the Indian rupee’s USD/INR pair inched 0.1% higher.
The South Korean won’s USD/KRW pair rose 0.3% on Friday amid an ongoing political crisis in the country.
Protestors took to the streets in South Korean capital Seoul calling for the arrest of impeached President Yoon Suk Yeol, after he attempted to impose military law in the country.