Asia FX sinks, dollar hits five-week high as U.S. inflation rises
Investing.com-- Most Asian currencies sank on Monday, while the dollar rose to a five-week high as a stronger-than-expected U.S. inflation reading drove up fears that the Federal Reserve could keep raising interest rates.
Concerns over worsening economic conditions in China also kept sentiment towards Asian assets dim, especially amid reports of a looming default for one of the country’s largest real estate developers.
The dollar index and dollar index futures rose nearly 0.2% each in Asian trade, hitting their highest levels since early-July after strong consumer and producer inflation readings for July.
The higher readings pushed up concerns that the Fed will need to maintain its hawkish stance for longer than expected to bring down sticky price pressures.
The prospect of rising U.S. interest rates boosted the dollar and Treasury yields, and kept investors shy of high-risk Asian markets. With U.S. interest rates set to remain at over 20-year highs until at least early-2024, Asian currencies are unlikely to see any relief in the near-term.
The Japanese yen was among the worst hit by a stronger dollar, briefly hitting a near nine-month low to the greenback as the gap between U.S. and Japanese yields widened. The South Korean won shed 0.2%, while the Thai baht slid 0.4% in holiday-thinned trade.
The yuan slipped 0.1% to a five-week low of 7.2434 to the dollar. While further losses in the currency were somewhat mitigated by a strong daily midpoint fix, the outlook for the Chinese currency appeared dour.
A string of weak economic readings released last week showed that an economic recovery likely slowed further in the beginning of the third quarter. This was capped off by data showing a substantial drop in new loans
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