The dollar recovered sharply from 15-month lows this week as traders pivoted into safe havens ahead of a Federal Reserve meeting next week. While the central bank is expected to hike interest rates by 25 basis points, markets remained uncertain over whether the bank will signal a pause in its rate hike cycle.
The dollar index and dollar index futures saw some mild profit taking on Friday, falling 0.1% each in Asian trade. But they were both set to gain nearly 1% this week.
This saw most Asian units headed for some weekly losses, with investors remaining wary of risk-driven assets ahead of the Fed meeting.
The yuan rose 0.1% on Friday after a substantially stronger daily midpoint fixing by the People’s Bank. The currency recovered from the 7.2 level to the dollar after being battered by concerns over slowing economic growth in China through the week.
China’s top currency regulator said on Friday that the country will employ more measures to support the yuan, after media reports said that the country’s biggest state-owned banks had intervened in currency markets by selling dollars to support the yuan.
On the stimulus front, China’s top economic planner, the National Development and Reform Commission, unveiled new measures aimed at supporting spending on automobiles and consumer electronics.
While the move points to more support for a slowing economic recovery in the country, increased liquidity also heralds more pressure on the yuan. Broader markets also did not appear too cheered by the new stimulus measures.
The yuan is one of the worst-performing Asian currencies this year, down 4% to the dollar.
Other Asian currencies were muted, with the South Korean won falling 0.3%, while the Australian dollar traded sideways.
The Japanese yen was flat as data showed consumer price index (CPI) inflation remained sticky through June. The reading showed that Japanese inflation was beginning to pick up despite government measures to curb high prices, and could eventually pressure the Bank of Japan (BOJ) into tightening monetary policy. A reading on core inflation also remained near 40-year highs.
Still, a Reuters poll showed that markets largely expect the BOJ to stand pat on its yield curve control policy when it meets next week.
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