How Are the Fear Trembles in Asia Affecting the Market?

On Friday, most Asian currencies saw a drop. China’s yuan lost ground on a crucial psychological threshold as investor interest in regional assets was dampened by worries about increasing interest rates and a probable recession.

Investors continued to be concerned about the slowing development of the second-largest economy in the world. Hence, the yuan fell 0.2%. It crossed the 7 levels versus the dollar for the first time in over two years.

What Do Data Say About the Market?

According to data released on Friday, Chinese house prices fell 1.3% in August, their largest monthly decline in seven years.

The poor statistics canceled out other readings that revealed a larger-than-anticipated increase in Chinese retail sales and industrial production in August. Chinese economic activity came to a standstill this year due to a string of COVID-related lockdowns. This prompted the government to take multiple stimulus measures to support growth. In turn it caused the yuan to decline even further. However, several recent firm midpoint adjustments for the yuan by the PBoC indicate that the administration is unwilling to allow the currency to decline.

Due to mounting concerns about a worldwide economic crisis due to warnings from the World Bank and the International Monetary Fund, the majority of other Asian currencies declined on Friday. The U.S. Fed should raise interest rates significantly next week, putting pressure on regional currency markets as the country’s inflation showed little moderating. The dollar index didn’t budge from its 20-year highs. After the government reaffirmed its commitment to preventing future currency losses, the Japanese yen increased by 0.1%.

There’s a growing gap between domestic and foreign interest rates. Hence, the yen was on track to lose money for a fifth straight week. It was trading close to 24-year lows. The rising cost of energy imports into Japan also affected the unit. As the likelihood of rising U.S. interest rates offered little solace to the market, most other Asian currencies were also suffering weekly losses versus the dollar.

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