Investing.com– Most Asian currencies were trading within a narrow range on Monday, with the yuan holding steady after the People’s Bank of China cut interest rates slightly more than anticipated. Meanwhile, the dollar remained close to recent highs.
Regional currencies had been under pressure in recent weeks as expectations of smaller U.S. interest rate cuts boosted the dollar, along with signs of strength in the U.S. economy.
The dollar reached a peak of over 2-½ months, with risk aversion ahead of the U.S. elections also contributing to its strength.
Mixed signals regarding Chinese stimulus measures also dampened sentiment towards regional markets, while doubts about the Bank of Japan’s ability to raise interest rates further kept the yen near recent lows.
Chinese yuan stable after loan prime rate reduction
The yuan was trading around 7.1019 against the dollar on Monday, following a strong fixing from the People’s Bank of China.
The PBOC cut its benchmark rate slightly more than expected, with Monday’s cut coming amidst a series of recent stimulus measures from Beijing.
China has announced its most aggressive round of stimulus measures in recent months, including both monetary and fiscal measures to support sluggish growth. This made Monday’s rate cut largely anticipated by the markets.
However, lower rates and increased fiscal spending could put pressure on the yuan, especially with U.S. interest rates expected to remain higher than initially thought.
Nevertheless, the prospect of more Chinese stimulus supported currencies with exposure to the country. The Australian dollar rose 0.1% against the yuan, while the Taiwan dollar fell 0.4%.
Other Asian currencies also showed some strength after recent losses. The Japanese yen fell 0.3% against the dollar but remained close to 150 yen, while the South Korean won was stable against the dollar.
The Singapore dollar edged lower against the dollar, while the Indian rupee remained above 84 rupees.
Dollar remains close to over 2-½ month high
The euro and pound both declined slightly in Asian trading but remained near their highest levels since early August.
The dollar was supported by growing expectations that U.S. interest rates would be reduced at a slower pace than initially forecast, especially as recent data indicated that the U.S. economy was still strong. Futures markets showed traders expecting a 25 basis point rate cut by the Federal Reserve in November.
The dollar also benefited from safe-haven demand with less than three weeks remaining until the 2024 presidential elections. Recent polls suggested a close race between Kamala Harris and Donald Trump.