Investing.com — Most Asian currencies were vulnerable on Monday as the dollar stabilized near two-month highs, while weakness in the Japanese yen prompted caution over possible intervention measures by Tokyo.
Sentiment towards regional markets was also dampened by fears of a trade war between China and the European Union, after Chinese officials warned of retaliation against European tariffs on Chinese electric vehicles.
Markets also wobbled on stronger-than-expected US PMIs, which led to heavy flows into the dollar and out of risk-driven assets.
Japanese Yen Weak, Under Intervention Watch as USDJPY Approaches 160
The yen was the biggest focus among Asian currencies on Monday as the pair, which measures the amount of yen needed to buy one dollar, came within par of 160 yen.
The level was the highest for the pair since 1986 and had prompted heavy government intervention in the currency markets in May, sending the USDJPY pair down to a low of 151.
The yen’s recent weakness led to warnings from several major Japanese officials about further intervention. Top currency diplomat Masato Kanda said the government would “intervene 24 hours a day if necessary.”
His comments provided some strength to the yen, with the USDJPY pair falling to 159.7 yen.
Chinese yuan and Asian currencies are under pressure due to tensions in the EU
The Chinese yuan pair held steady at a seven-month high on Monday after the yuan was hit in recent weeks by deteriorating ties between China and the EU.
Chinese officials said this weekend that a trade war with the EU was possible in light of tariffs on Chinese electric vehicles. The German and Chinese ministers were also expected to meet this week.
Concerns about a trade war kept traders averse to high-risk currencies, leading to weakness in most Asian units. The Australian dollar pair fell 0.1%, while the South Korean won pair rose 0.1%.
The Singapore dollar pair rose slightly, while the Indian rupee pair fell 0.1%, but remained within sight of recent record highs.
Strong dollar, PCE inflation awaited
The and both rose slightly in Asian trading and were at their highest levels since early May.
The dollar was boosted by stronger-than-expected PMI data, which raised concerns that a resilient U.S. economy would give the Federal Reserve more leeway to keep interest rates high.
The focus was now on the most important data, which will be released this Friday. This reading is the Fed’s favorite inflation gauge and will likely play a role in the interest rate outlook.