The Chinese yuan was the sole outlier for the day, falling 0.2% to an over six-month low after the People’s Bank of China trimmed a short-term lending rate, its first such move in 10 months.
CPI data due later in the day is expected to show that U.S. inflation grew at a slower pace in May than the prior month. But the reading is still expected to be twice as much as the Fed’s annual target range of 2%.
The inflation reading is also widely expected to factor into the Fed’s decision on interest rates at the conclusion of a two-day meeting on Wednesday. While the central bank is expected to hold rates steady, markets remained on edge over any hawkish surprises.
Still, with U.S. rates set to remain higher for longer this year, Asian currencies are expected to remain under pressure.
The Chinese yuan fell to 7.1694 against the dollar, hitting a new six-month low as a rate cut by the PBOC further weakened the appeal of the currency.
The PBOC cut its seven-day reverse repo rate by 10 basis points to 1.90% from 2.00%, its first such rate cut after the bank trimmed its Loan Prime Rate in August.
Markets have been positioning for a Chinese rate cut in recent weeks as data showed that a post-COVID economic recovery in the country rand dry.
Several Chinese state-owned banks also began cutting their rates on yuan deposits, heralding a broader, benchmark rate cut by the PBOC in the coming weeks.
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