By Ambar Warrick
Investing.com– China’s yuan sank further below key levels on Monday after more monetary easing in the country, while broader Asian currencies tumbled in anticipation of a Federal Reserve meeting later this week.
The fell 0.4% to an over two-year low of 7.0080 to the dollar, its second day spent in breach of the psychologically important 7 level. The drop came despite an extremely hawkish midpoint fix by the central bank.
The People’s Bank of China cut a repo rate on Monday, and also increased cash injections into the economy as it sought to boost growth that was severely dented by COVID-related lockdowns.
The central bank is now struggling to strike a balance between supporting economic growth and stemming further losses in the yuan. A series of strong midpoint fixes by the bank suggest that it is unwilling to let the currency drop any further.
China’s prospects may improve in the near-term, after the lifting of a two-week COVID lockdown in the megacity Chengdu. Still, the economy has a long road to reach pre-COVID highs.
Broader Asian currencies sank on Monday, while the and rose around 0.1% each.
The fell 0.4%, while the was the worst performer in Southeast Asia with a 0.3% decline. The fell 0.2%, although a market holiday in the country kept trading volumes slim.
The Fed is widely expected toon Wednesday. Traders are also pricing in the possibility of a 100 bps hike, after hotter-than-expected U.S. inflation data last week.
“High inflation means 100bp is a risk, but inflation expectations and corporate price plans look less threatening, and the growth outlook is more uncertain, so we don’t see it. Still, a more hawkish message surrounding sticky inflation will see the Fed dots closer reflect the market pricing of a 4.25-4.5% terminal rate,” ING analysts wrote in a note.
In the Asia Pacific region, the sank 0.5% to an over two-year low. said the bank plans to include climate change risks in how it manages monetary policy.