Asian currencies fall as a result of a rise in U.S. Treasury yield
Friday saw a decline in Asian currencies as worries about an impending recession were stoked by a sharp rise in U.S. Treasury rates. Data showing a little increase in local inflation following the lifting of anti-COVID measures also had an impact on the Chinese yuan at the same time.
China’s Economic Recovery Is Slower Than Expected
China’s economy’s growth rate decreased by 0.3% as a result of data showing that growth in January was less than anticipated. The economy also suffered another setback in the same month.
Asia is impacted by China’s dominance in regional trade
A delayed economic recovery in China might have a detrimental effect on the whole region because of its important position as an Asian commercial hub. This new information also increases the possibility that the Chinese government would implement other stimulus programs and interest rate reductions, which might weaken the yuan much more in the following year.
Inversion of US Yields Increases Economic Uncertainty
Investor pessimism was further impacted by the U.S. yield inversion, a typical indicator of a recession, which fell to its lowest level since the 1980s.
Southeast Asian currencies are most susceptible to risks from the US recession.
The Thai baht and Malaysian ringgit, which are both risky currencies in Southeast Asia, were among the most affected, shedding 0.4% apiece. A possible U.S. recession would alter investor perceptions of Asia’s high-risk markets and perhaps lessen foreign capital inflows.
Amid demand for safe haven assets and Fed signals, the dollar gains.
Due to rising demand for safe haven assets and hawkish signals from the Federal Reserve, the dollar appreciated versus a basket of other currencies and was expected to have a robust performance throughout the course of the week. The euro and the pound each witnessed gains of 0.1%, with weekly gains reaching 0.5%.
The Direction of US Monetary Policy Remains Uncertain
However, despite recent statistics indicating a slowdown in the employment market, investors are still unsure about the path of U.S. monetary policy. The Federal Reserve’s economic flexibility to raise interest rates is anticipated to be constrained by the rise in unemployment rates and an increase in layoffs.
Next Week’s U.S. Jobs Report will be the focus.
As the world’s largest economy experiences decreasing activity, focus now shifts to the U.S. jobs data expected next week. The 10-year Treasury yield decreased by 0.1% despite remaining near to 40-year highs as data revealed a somewhat greater than anticipated drop in January from the preceding month.