Most Asian currencies steadied on Tuesday after logging steep losses in recent sessions on concerns over U.S. President Donald Trump’s plans a swathe of steep global trade tariffs.
But the Chinese yuan weakened further on Tuesday after Beijing warned against further escalation in a trade war with the U.S., especially after Trump threatened to hike tariffs against China even further.
The dollar saw little relief from growing fears of a U.S. recession, with markets also upping bets that the Federal Reserve will cut interest rates earlier this year to offset the potential impact of Trump’s tariffs.
Broader Asian markets rebounded on Tuesday after three days of steep losses. But sentiment still remained on edge over the impact of Trump’s tariffs, a bulk of which will go into effect from Wednesday.
The Japanese yen retreated on Tuesday but remained close to recent peaks, as appetite for safe havens still persisted. The USD/JPY pair rose 0.3%.
Chinese yuan at 19-mth low, Beijing vows to ‘fight to the end’
The Chinese yuan reached its weakest level since October 2023 on Tuesday, with the USD/CNY pair rising more than 0.3% to 7.3364 yuan.
China was among the worst hit by Trump’s tariffs, which amount to a 54% duty on all Chinese goods. Trump on Monday threatened to impose another 50% tariff on China, if Beijing did not withdraw its retaliatory, 34% tariffs on the U.S.
But Beijing decried Trump’s threat, warning that it was prepared to “fight to the end” in the face of a Sino-U.S. trade war.
China was also seen preparing a host of stimulus measures to bolster the local economy against Trump’s tariffs.
But any more fiscal and monetary stimulus is expected to weigh on the yuan, especially if China cuts lending rates even further to support growth. China’s benchmark loan prime rates have been at record lows for the past two years.
Broader Asian currencies moved in a flat-to-low range. The Australian dollar’s AUD/USD pair fell 0.3% as data showed a sharp deterioration in consumer sentiment in early-April.
The Singapore dollar’s USD/SGD pair fell 0.4%, while the South Korean won’s USD/KRW pair was flat.
The Indian rupee’s USD/INR pair rose 0.1% after briefly breaking past 86 rupees. The Reserve Bank of India is set to meet tomorrow, and is widely expected to cut interest rates by 25 basis points.
Dollar fragile amid recession fears, rate cut bets
The dollar index and dollar index futures both fell about 0.5% and 0.2%, respectively, in Asian trade. Both indicators remained close to a six-month low hit earlier in the month.
The greenback was battered by concerns over the impact of Trump’s policies, which could elicit a U.S. recession later this year. Several investment banks, brokerages, and online betting markets were seen moving up their expectations for a 2025 recession.
The dollar was also dented by growing bets that the Fed will cut interest rates early, and by a deeper margin, to support the economy.
The CME Fedwatch tool shows markets pricing in a 25 basis point cut by at least July.
The minutes of the Fed’s March meeting are due on Wednesday, and are expected to offer more cues on interest rates.
Source : Investing