Asian Currencies Dip as Dollar Strengthens Amid Geopolitical Tensions and Central Bank Focus
Most Asian currencies edged lower on Monday, while the U.S. dollar gained strength amid rising risk aversion linked to escalating tensions between Israel and Iran, as well as anticipation surrounding several major central bank decisions this week.
The Japanese yen, typically seen as a safe-haven asset, lost ground ahead of the Bank of Japan’s policy meeting scheduled for Tuesday. While the BOJ is expected to maintain current interest rates, market attention is focused on any indications of changes to its bond-buying program. Despite elevated inflation, economists generally expect a cautious tone from Governor Kazuo Ueda, given prevailing uncertainties in the global economic outlook.
Meanwhile, the Chinese yuan saw mild weakness following a set of mixed economic indicators. While industrial output for May fell slightly short of expectations—largely due to the impact of ongoing trade frictions with the U.S.—retail sales exceeded forecasts, buoyed by consumer activity during public holidays and online shopping events. This uptick offered a modest boost to confidence in domestic demand. The People’s Bank of China is expected to hold its loan prime rate steady later this week, following a previous reduction.
In broader Asia, most currencies declined due to renewed concerns over a possible military escalation in the Middle East. The dollar index and its futures each advanced by 0.1% during Asian trading hours, ahead of the Federal Reserve’s upcoming meeting. Although no change in interest rates is expected from the Fed, markets are closely watching Chair Jerome Powell for signals on the future direction of monetary policy, particularly regarding potential rate cuts.
Beyond the Fed, interest rate decisions are also expected this week from the Swiss National Bank, Bank of England, and Bank of Indonesia.
In specific currency movements:
- The USD/JPY pair rose 0.3%, reversing last week’s gains in the yen.
- The USD/CNY pair inched higher amid mixed Chinese data.
- The AUD/USD dipped 0.1%, and the USD/SGD rose by the same margin.
- The USD/INR pair held steady after recent losses earlier in June, which followed a larger-than-expected rate cut by the Reserve Bank of India.
- The South Korean won was a rare gainer, with the USD/KRW pair down 0.3%, boosted by political stability following a recent presidential election victory by the country’s liberal party.
