Asia FX dips, dollar at over 2-mth high with Powell in focus

Asia FX dips, dollar at over 2-mth high with Powell in focus

The greenback saw strong overnight gains, while Treasury yields also moved back towards multi-decade highs as data showed continued resilience in the U.S. jobs market.

Focus is now chiefly on an address by Federal Reserve Chair Jerome Powell at Jackson Hole, with markets fearing any potentially hawkish signals from the Chair, given that U.S. inflation remains sticky while the labor market is strong. 

The dollar index and dollar index futures both rose 0.2% each in Asian trade, and were sitting at their strongest levels since early-June. While the greenback saw some consolidation this week, following weak business activity readings, it was still set to rise for a sixth straight week of gains.

The prospect of higher U.S. interest rates bodes poorly for Asian currencies, as the gap between risky and low-risk yields narrows. Most regional units retreated on that notion.

The Japanese yen fell 0.1% after steep overnight losses, and was now back within sight of a near 10-month low. The yen was also hit by concerns over deteriorating relations with China, after Beijing blocked all seafood exports from Japan on concerns over radioactive contamination.

The rate-sensitive South Korean won was flat after the Bank of Korea kept interest rates steady earlier this week, for the fourth straight month. But the move was seen as a hawkish pause, as the central bank moves to curb sticky inflation. 

The Australian dollar fell 0.1%, trading close to nine-month lows as it tracked weakness in commodity prices. The Singapore dollar fell 0.1%, as did the Indian rupee

Beyond Powell, central bank heads from Japan and Europe are also expected to speak at Jackson Hole later in the day. 

The Chinese yuan fell 0.1%, steadying after a series of strong daily midpoint fixes from the People’s Bank of China. 

Reuters reported that the PBOC asked some domestic banks to limit outward investments through the bond connect scheme, which was seen as a bid to reduce yuan supply in offshore markets, potentially supporting the Chinese currency.

Beijing was seen intervening in currency markets this month to stem a slide in the yuan, which is struggling with increased selling pressure in the face of higher U.S. interest rates and worsening sentiment towards China.

The PBOC had also cut interest rates by a smaller-than-expected margin this week, signaling Beijing’s growing reluctance to let the yuan fall further. 

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