Asian FX weakens

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Asian currencies weakened further as a resolve by the US central bank to keep increasing interest rates to bring soaring inflation under control supported the dollar.

The South Korean won was the top loser, falling as much as 0.6 percent to hit its lowest in more than 13 years and marking its fourth straight session of losses, while China’s yuan eased 0.4 percent to a more than three-month low.

The yuan is among the region’s worst performing currencies so far this year with a drop of more than 6 percent and remains under pressure from the country’s loose monetary policy aimed at propping up the COVID-hit economy.

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After the People’s Bank of China (PBOC) cut key lending rates in a surprise move earlier this week to revive demand, a group of designated commercial banks are expected to lower the loan prime rate by 10 basis points, a Reuters survey showed.

“We see a risk of yuan depreciation possibly gathering momentum on a lethal combination of deteriorating macro backdrop and geopolitical tensions,” analysts at Maybank said in a note.

“The unexpected slowdown in the economy was rather broad-based and the PBOC could remain in easing mode as long as the economy is under pressure from zero-COVID strategy, a weak property sector,” they said, adding that yuan could remain under pressure from “fundamental perspective”.

All Asian currencies were set to post losses for the week as the dollar held strong and investors digested economic headlines and central bank decisions from the region. The worst performing currency for the week was South Korea’s won, down about 2 percent.

The Thai baht, Indonesia’s rupiah and the Singapore dollar were set to lose more than 1 percent each for the week, while the Malaysian ringgit and Philippine peso were down 0.7 percent and 0.4 percent, respectively.

The US dollar index, which measures the greenback against a basket of major peers, hit a one-month high and was set for a 2 percent weekly gain lifted by the Federal Reserve’s tightening outlook.

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