On Monday, many Asian currencies saw a decline, with the Japanese yen reaching its lowest point in 34 years. This drop was fueled by heightened demand for safe-haven assets following an Iranian strike on Israel, pushing the dollar to its highest level in over five months.
Additionally, the dollar received a boost from expectations of prolonged higher interest rates in the U.S. due to robust inflation data and hawkish signals from the Federal Reserve last week.
Furthermore, sentiment towards Asia was dampened by disappointing economic indicators from China. In March, China experienced worsening disinflation, while both export and import figures fell short of expectations for the month.
Yen Weakens as Dollar Surges
On Monday, the yen stood out as one of the day’s weakest performers, with the USDJPY pair climbing 0.3% to reach a 34-year high of 153.77. Despite its typical role as a safe-haven asset, the yen was overshadowed by gold and the dollar in risk-averse trading scenarios.
The yen’s decline has put traders on alert for potential currency market intervention by the Japanese government, especially given recent warnings from government officials. Notably, levels above USDJPY 153 have historically prompted significant intervention from the Japanese government, leading to sharp pullbacks in the currency pair.
With Japanese inflation data scheduled for release later this week, market participants are eagerly awaiting further cues on the state of the economy.
Dollar hits 5-½ month peak on rate concerns and Iran-Israel tension
In Asian trading, the dollar index and dollar index futures stabilized after reaching 5-½ month highs on Friday. The surge in the greenback was driven by safe-haven demand following Iran’s large-scale missile and drone strike against Israel. However, the strike caused minimal damage, and Iran indicated the conclusion of its attack, with Israeli ministers reportedly not considering immediate retaliation.
Additionally, the dollar received support from diminishing expectations of Fed interest rate cuts in the first half of 2024, spurred by robust March inflation data. Weak risk appetite and expectations of sustained higher U.S. rates weighed on most Asian currencies.
The Chinese yuan’s USDCNY pair remained steady after the People’s Bank of China kept medium-term lending rates unchanged. Meanwhile, the Australian dollar’s AUDUSD pair rebounded by 0.4% from a recent plunge to two-month lows, and the South Korean won’s USDKRW pair rose by 0.3%.
However, the Indian rupee weakened, with the USDINR pair declining from levels close to record highs, while the Singapore dollar’s USDSGD pair traded sideways.
