Investing.com – Most Asian currencies strengthened on Monday, reversing some of their recent losses, as the dollar consolidated at a one-month high while traders remained wary of possible government intervention in the Chinese yuan and Japanese yen.
Most regional currencies suffered huge losses from last week as the dollar overcame seemingly dovish Federal Reserve signals following a surprise rate cut by the Swiss National Bank.
A stronger dollar limited gains in most Asian currencies on Monday.
USDCNY falls below 7.2, state banks intervene
The Chinese yuan strengthened sharply, with the pair falling 0.4% and briefly breaking below 7.2. The offshore yuan fell 0.5% but remained well above the 7.2 level.
Reuters reported that the People’s Bank of China has instructed state-owned banks to buy yuan and sell dollars on the open market to support the Chinese currency.
The yuan fell to a four-month low in recent sessions amid growing concerns about China’s sluggish economy. The PBOC also recently signaled that it still has plenty of room to cut base rates further.
USDJPY Strengthens After Verbal Warning
The Japanese yen strengthened slightly on Monday, with the pair falling 0.1% after Japan’s top currency diplomat issued a verbal warning of possible government intervention.
Masato Kanda, deputy finance minister for international affairs, said the yen’s recent weakness does not reflect the currency’s fundamentals and that the government remains prepared to respond to the yen’s fall.
USDJPY rose to a four-month high last week even with support from the Bank of Japan for the first time in 17 years. But Bank of Japan Governor Kazuo Ueda gave mostly dovish signals on near-term monetary policy, which had a key impact on the yen.
With USDJPY now trading well above the 150 level, traders have been on edge for any potential intervention in the foreign exchange markets, given USDJPY levels such as these have attracted intervention in the past.
for Tokyo should also arrive later this week.
Dollar stabilizes below one-month high
The index fell slightly from a one-month high in Asian trade, consolidating after a late-week rally.
The dollar rose after dovish signals from the SNB and the Bank of England showed that the dollar will remain the only relatively high-yielding, low-risk currency in the short term.
While the Fed still sees rates cut at least 75 basis points this year, that figure will largely depend on how inflation moves. The data, the Fed’s preferred measure of inflation, will be released this Friday.
Asian currencies strengthened but gains were limited ahead of key economic indicators this week.
The Australian dollar strengthened, with the pair rising 0.2% ahead of data later this week.
The South Korean won rose 0.3% and the Singapore dollar strengthened 0.1% ahead of scheduled trading later in the day.