In Monday’s trading session, most Asian currencies experienced a decline, notably with the Japanese yen reaching new 34-year lows. This downward trend was driven by heightened demand for safe-haven assets following an Iranian strike on Israel, which simultaneously propelled the dollar to over five-month highs.
The dollar’s ascent was further bolstered by expectations of sustained high U.S. interest rates, spurred by robust inflation data and hawkish signals from the Federal Reserve in the preceding week.
Additionally, sentiment towards Asia was dampened by disappointing economic indicators from China, as the country’s disinflation deepened in March, coupled with export and import figures falling short of expectations for the month.
Japanese Yen Weakens, USDJPY Surges Past 153
Among the underperformers of the day, the yen witnessed significant weakness, with the USDJPY pair climbing by 0.3% to reach a 34-year high of 153.77. Traditionally perceived as a safe-haven currency, the yen found itself overshadowed by gold and the dollar amidst risk-averse trading sentiments.
The yen’s decline prompted concerns among traders regarding potential intervention in currency markets by the Japanese government, following repeated warnings from government officials in recent weeks. Notably, levels above USDJPY 153 had previously triggered a record amount of intervention by the Japanese government in 2022, leading to a sharp retreat in the currency pair.
Furthermore, upcoming Japanese inflation data later in the week is anticipated to provide further insights into the state of the economy.
Dollar Reaches 5-½ Month High Amid Rate Concerns and Iran-Israel Tensions
The dollar index and dollar index futures stabilized in Asian trading after surging to 5-½ month highs on Friday. The greenback’s rally was fueled by safe-haven demand following Iran’s extensive missile and drone strike against Israel.
However, the impact of the strike appeared minimal, with Iran signaling the conclusion of its attack against Israel. Additionally, Israeli ministers indicated no immediate plans for retaliation.
Moreover, the dollar found support from diminishing expectations of Federal Reserve interest rate cuts in the first half of 2024, spurred by robust inflation readings in March.
The prevailing weak risk appetite and expectations of sustained high U.S. rates exerted downward pressure on most Asian currencies. The Chinese yuan’s USDCNY pair remained steady after the People’s Bank maintained medium-term lending rates unchanged.
While the Australian dollar’s AUDUSD pair rebounded by 0.4% from a two-month low on Friday, the South Korean won’s USDKRW pair also edged up by 0.3%.
However, the Indian rupee remained fragile, with the USDINR pair retreating from levels close to record highs, while the Singapore dollar’s USDSGD pair traded sideways.