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Asia FX sinks, dollar firms after Powell flags more rate hikes

Asia FX sinks, dollar firms after Powell flags more rate hikes
© Reuters. — Most Asian currencies retreated on Thursday, while the dollar strengthened as Federal Reserve Chair Jerome Powell flagged the potential for more interest rate hikes, pointing to pressure on regional markets.

Speaking at a , Powell said that while the Fed had come a long way in its battle against inflation, there still stood the possibility of at least two more rate hikes to curb stubborn inflation.

His comments pushed up the dollar and Treasury yields, with the and both rising over 0.2% in Asian trade. Anticipation of U.S. – the Fed’s preferred inflation gauge – also pushed traders into the dollar.

The prospect of rising U.S. interest rates weighed on most regional units, given that it points to a narrowing gap between risky and low-risk yields.

The rate-sensitive fell 0.5% and was the worst performer for the day, while the edged 0.1% higher on stronger-than-expected data for May.

Regional trading volumes were also somewhat muted on account of market holidays in India, Indonesia, Malaysia, and Singapore.

Chinese yuan nears 8-month low, PMIs in focus

The sank 0.1% against the dollar, coming close to a near eight-month low despite repeated attempts by the People’s Bank to support the currency.

The PBOC set a much stronger-than-expected daily midpoint for the Chinese currency, although it offered little support to the yuan.

The yuan was largely pressured by worsening sentiment over a Chinese economic recovery this year, which had also spurred interest rate cuts by the PBOC earlier in June.

Focus is now on key data for June, due on Friday. The reading is expected to show a deeper contraction in , while growth in is expected to slow.

Concerns over slowing growth in China have also dented broader sentiment towards Asian markets, given the country’s key role as a regional trading hub.

Japanese yen steadies amid intervention watch

The Japanese yen moved little on Thursday, hovering close to eight-month lows against the dollar.

The currency took little support from stronger-than-expected data for May, which indicated some resilience in the Japanese economy.

But markets were largely focused on any measures from the Japanese government to support the yen, following verbal warnings from top finance and currency ministers.

Analysts expect the government to intervene after the yen crosses the 145 mark, with the currency trading less than 1% shy of the level.

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