On Thursday, the dollar rose to its highest level in two months as investors shied away from risky assets. Due to the uncertainty around extending the United States debt ceiling and preventing a default.
A worsening attitude towards China and rumours that the country is experiencing a COVID-19 rebound. Which may climax by late June, weighed on regional currency.
After breaching the 7 barrier last week. The Chinese yuan decreased by 0.2% to a level that is close to six months low. After several dismal readings for April, worries about the country’s economy’s faltering development were exacerbate by worries of a fresh COVID outbreak.
The yuan was stressed due to potentially deteriorating relations among Beijing and Washington.
The Singapore dollar fell 0.2% as worries about China spread to other Asian markets. Data showed that the island nation’s GDP contracted in the 1st quarter, mostly as a result of weakening Chinese consumption.
Wider Asian currencies fell as worries over a United States debt default remained, and Republican and Democrat lawmakers noted no progress in extending the borrowing ceiling.
The most recent setback to sentiment occurred when ratings agency Fitch warned of a probable downgrade for the United States in the case of a default.
The Indian rupee declined 0.1 percent & trade close to a 2-month low. While the Japanese yen dropped 0.2 percent to a 6-month low against the dollar.
In addition to traders selling treasuries in favour of the dollar. There was a rise in the demand for safe haven assets, which supported the dollar. Both the dollar index and the dollar index futures increased by 0.2% in Asian trading, lingering around two-month highs.
The U.S. dollar benefited from conflicting monetary policy signals as well. As the minutes of the Fed Reserve’s meeting in May indicated that interest rates would probably stay higher for longer.
According to the prices of Fed Fund futures, there is a greater than 60% likelihood that the Fed will maintain interest rates in June. But more and more people are also factoring in the likelihood of another rate increase.
The stress on Asian currencies is expect to increase in the next months due to low risk appetite & high the United States interest rates, continuing a pattern that was observed through 2022.