Most Asian currencies advanced on Monday after data showed some improvement in Chinese business activity, while the dollar retreated amid increased speculation over interest rate cuts by the Federal Reserve.
The greenback remained at an over three-year low, also pressured by concerns over higher government debt levels, especially as a sweeping tax and spending cut bill progressed in the U.S. Senate. Lawmakers are expected to vote on the bill’s passage by as soon as Monday.
Broader regional currencies extended gains from last week, and were also sitting on strong gains for June as markets amid persistent weakness in the dollar.
Chinese yuan firms; June PMIs show some improvement The yuan’s USDCNY pair fell 0.1% on Monday, with the Chinese currency close to its strongest level since November.
Purchasing managers index data showed China’s manufacturing sector shrank at a slightly smaller rate in June than expected, while non-manufacturing activity picked up from the prior month.
The reading reflected some improvement in Chinese business activity, with the manufacturing sector seeing a recovery in overseas orders after the U.S. and China agreed to slash their respective trade tariffs in May.
But China’s manufacturing sector still shrank for a third consecutive month, indicating that local manufacturers still remained under pressure from relatively high U.S. tariffs. Local demand also remained languid.
Still, persistent weakness in the Chinese economy is expected to elicit more stimulus measures from Beijing.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. Dollar weak amid rate cut bets, debt concerns The dollar index and dollar index futures fell 0.2% each in Asian trade, remaining close to their weakest levels since early-2022.
The greenback was pressured by increased speculation over the Fed’s plans for interest rate cuts. CME Fedwatch showed markets ratcheting up bets that the central bank will cut rates by 25 basis points by at least September.
These bets came even as recent inflation data read showed an increase in May, while Fed Chair Jerome Powell dismissed speculation that a rate cut was imminent.
Still, Powell is under persistent pressure from Trump to cut rates, with the president expected to even announce Powell’s successor early to undermine the Fed chair.
Concerns over high U.S. government debt also weighed on the dollar, as Trump’s sweeping tax-cut bill progressed through the Senate.
The Congressional Budget Office (CBO)– a non-partisan, federal agency that analyzes the economic effects of proposed legislation in Congress– estimates U.S. government debt will increase by nearly $3.3 trillion over the next decade due to the bill.
Higher U.S. debt levels increase the cost of government debt, and also raise the risk of a default. Congress has until mid-summer to raise the U.S. debt limit and avert a potential default.
Broader Asian currencies mostly benefited from weakness in the dollar, although bigger gains were limited by some middling data, as well as increased uncertainty over Trump’s trade tariffs before a July 9 deadline to sign trade deals with the United States.
