Asian FX Falls on Rate Risks, Yuan Rattled by Real Estate Woes

FX Signals – Most Asian currencies fell on Thursday as investors digested mixed signals from the U.S. Federal Reserve on its plans to hike rates, while China’s yuan sank on growing concerns over a real estate crisis.

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The yuan fell 0.2% to 6.7912, trading near three-month lows as investors fretted over a downturn in the Chinese economy. A profit warning from major real estate developer Country Garden Holdings Company Ltd (HK:2007) brewed fresh concerns over a property market slowdown, which threatens to spill over into other facets of the economy.

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The profit warning also comes after a series of weak economic readings from China over the past two weeks, which spurred increased stimulus measures by the government.

In another bearish sign for the yuan, the People’s Bank of China unexpectedly cut interest rates earlier this week.

Other Asian currencies fell on Thursday, after the minutes of the Federal Reserve’s July meeting showed that most members supported raising interest rates further to combat elevated inflation.

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The Indian rupee fell 0.4%, while the South Korean won lost 0.3%. The Japanese yen was unchanged around 135.09.

The Fed acknowledged that it will eventually lower its pace of monetary tightening as inflation eases in the country. Softer-than-expected inflation readings from the United States for July saw traders pricing in a smaller rate hike by the Fed in September. But inflation is still pinned near 40-year highs.

China’s Digital Yuan in doubt

The dollar index strengthened slightly after the minutes, and was trading 0.1% higher on Thursday. Dollar index futures also rose 0.1%.

Bucking the trend, the Philippine peso rose 0.2%, ahead of a widely anticipated interest rate hike by the central bank later in the day.

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The Philippine central bank is expected to raise interest rates by 50 basis points to 3.25%, amid rising inflation in the Southeast Asian country.

Asian FX Falls on Rate Risks, Yuan Rattled by Real Estate Woes

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NEW YORK (Reuters) – The U.S. dollar pared its gains on Wednesday after minutes from the Federal Reserve’s July meeting showed that Fed officials are concerned the U.S. central bank could raise rates too far as part of its commitment to get inflation under control.

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In a glimpse of the emerging debate at the central bank, “many” participants noted a risk that the Fed “could tighten the stance of policy by more than necessary to restore price stability,” a fact that they said made sensitivity to incoming data all the more important, the minutes showed.

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“Some participants at the Fed were noting that interest rate sensitive sectors had begun to show signs of slowing and that there was in the eyes of some participants a risk of overtightening,” said Brian Daingerfield, head of G10 FX strategy at NatWest Markets in Stamford, Connecticut.

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It comes after Fed Chairman Jerome Powell said at the July meeting that the impact of Fed rate increases to date is still building in the economy, and depending on how inflation responds in coming months that could allow the central bank to begin to slow the pace of rate increases.

“That combination I think is giving the minutes a little bit of a dovish feel relative to what we’ve heard from FOMC officials in the aftermath of the meeting,” said Daingerfield.

The dollar index fell to 106.39 after the meeting minutes were released, before rebounding back to 106.55, up 0.09% on the day.

The size of the Fed’s next expected rate hike is expected to depend on consumer price inflation and jobs data for August, which will be released before its September meeting.

The odds of a 75 basis-point hike in September dropped to 40% after the meeting minutes, from 52% earlier on Wednesday, with a 50 basis-point hike now seen as a 60% probability.

Looser financial conditions as benchmark 10-year Treasury yields hold below 3% and as the credit and stock markets improve has also increased speculation the Fed may need to be more aggressive in hiking rates to make an impact.

Retail sales data on Wednesday were solid, helping to reduce concerns about an economic slowdown.

The euro gained 0.13% on the day against the dollar to $1.0185. The greenback gained 0.55% against the yen to 134.97.

Asian FX Falls on Rate Risks, Yuan Rattled by Real Estate Woes

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Dollar Edges Higher; Sterling Weak After GDP Fall

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