Asian currencies weakened as state banks cut rates, causing the yuan to hit a six-month low.

Asian currencies edged lower on Thursday amid concerns about rising interest rates and global economic slowdown, while the dollar held near an 11-week high ahead of the upcoming Federal Reserve meeting.

The Chinese yuan dropped by 0.1%, reaching a new six-month low against the dollar. This decline followed the decision of several major Chinese state banks to lower interest rates on yuan deposits. This move is seen as a potential precursor to a wider interest rate cut by the People’s Bank of China later this month.

China’s struggling economy faced more hurdles as trade data this week revealed unexpected shrinkage in exports and a 13-month low in trade surplus. Softening global demand for Chinese goods added to the economic challenges the country is grappling with after three years of COVID disruptions.

Chinese inflation data on Friday is expected to reveal more about the country’s disinflationary trend.

Asian currencies, in general, exhibited a flat-to-low range movement due to concerns over slowing economic growth and increasing U.S. interest rates. These factors contributed to market caution and a general aversion to risk-driven assets across the region.

The South Korean won saw a 0.2% increase as the government signaled an annual economic growth projection of below 1.6%. This forecast is significantly lower than the 3.1% growth observed in 2022.

Indian rupee held steady ahead of a central bank meeting expected to keep interest rates unchanged due to easing inflation.

On Thursday, the Japanese yen experienced a 0.2% increase, benefiting from an upward revision to the country’s first-quarter gross domestic product (GDP) figures. This revision instilled optimism regarding the resilience of the Japanese economy, which is currently dealing with high inflation and weakening global demand for exports. The improved GDP reading provided some support to the yen.

Australian dollar rose 0.3% as expectations of rate hikes outweighed weak economic signals, including a decline in exports and trade balance.

The recent reading follows data indicating that the Australian economy experienced minimal growth in the first quarter of 2023.

Dollar rangebound ahead of Fed and CPI data.

In Asian trade on Thursday, the dollar exhibited minimal movement, as both the dollar index and dollar index futures stabilized just below their 11-week highs.

The greenback has entered a narrow trading range due to uncertainty surrounding the upcoming Fed meeting. Market sentiment is divided on whether the central bank will proceed with another interest rate hike. As a result, the dollar has experienced limited movement.

Upcoming U.S. inflation data next week will provide cues for the economy and impact future interest rate decisions by the Fed.

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