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Asia FX Weakens as China PMIs Disappoint; Dollar Steady Ahead of PCE Data

In Friday’s trading session, most Asian currencies experienced downward pressure, with the Chinese yuan nearing six-month lows following disappointing business activity indicators. Concurrently, the dollar stabilized as market participants awaited crucial inflation data.

Regional Currency Trends

Asian currencies faced downward drifts amidst lingering concerns regarding sustained high U.S. interest rates, with hawkish sentiments from Federal Reserve officials contributing to the prevailing unease.

However, a reprieve was witnessed on Thursday as the dollar retreated from its two-week highs following softer-than-expected gross domestic product (GDP) data.

Dollar Stability and Anticipation of PCE Data

The dollar index and dollar index futures in Asian trade marked a 0.1% uptick, stabilizing after overnight losses triggered by revised first-quarter GDP figures indicating slower-than-expected economic growth. This development raised hopes that the Fed might adopt a more accommodative stance to stimulate economic expansion.

Nevertheless, concerns over persistent inflation and high interest rates remained salient, with attention fixed on the impending release of the Personal Consumption Expenditures (PCE) price index data, the Fed’s preferred gauge of inflation.

Chinese Yuan Weakness and Stimulus Speculations

The Chinese yuan’s USDCNY pair edged up by 0.1%, nearing six-month highs reached earlier in the week, as purchasing managers index (PMI) data revealed a deterioration in Chinese business activity for May. The unexpected contraction in manufacturing PMI and slower growth in non-manufacturing PMI prompted speculation about increased stimulus measures from Beijing to bolster economic growth. However, such stimulus efforts, likely involving looser monetary conditions, could exert downward pressure on the yuan.

Other Currency Movements

Other China-exposed currencies exhibited mixed movements, with the Australian dollar’s AUDUSD pair registering slight gains and the South Korean won’s USDKRW pair rising by 0.5%. Similarly, the Singapore dollar’s USDSGD pair advanced by nearly 0.1%.

Meanwhile, the Japanese yen’s USDJPY pair remained relatively stable following overnight declines, influenced by minor dollar weakness. In Japan, consumer price index data from Tokyo indicated expected growth in May inflation, although at subdued levels, which could diminish prospects for the Bank of Japan to consider interest rate hikes.

The Indian rupee’s USDINR pair lingered near recent record highs, above 83 rupees, amidst anticipation surrounding the results of the 2024 general elections scheduled for June 4.

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