Most Asian currencies were under pressure on Monday as the U.S. dollar maintained near two-month highs. The Japanese yen’s weakness, in particular, prompted concerns over possible intervention by Tokyo. Additionally, fears of a trade war between China and the European Union (EU) weighed heavily on regional market sentiment, following warnings from Chinese officials about potential retaliatory measures against European tariffs on Chinese electric vehicles.

Yen’s Fragility and Intervention Watch as USDJPY Nears 160

The Japanese yen was the focal point among Asian currencies on Monday. The USDJPY pair, which measures the yen’s value against the dollar, approached the critical 160 yen level. This level was the highest since 1986 and previously triggered substantial government intervention in May, pushing the USDJPY pair down to 151.

Recent yen depreciation led to warnings from key Japanese officials about possible intervention. Top currency diplomat Masato Kanda emphasized that the government would “intervene 24 hours a day if necessary.” His remarks temporarily strengthened the yen, causing the USDJPY pair to drop to 159.7 yen.

Chinese Yuan and Asian Currencies Affected by EU Trade Tensions

The Chinese yuan’s USDCNY pair stabilized at a seven-month high on Monday, after recent weeks of being battered by deteriorating relations between China and the EU. Chinese officials over the weekend mentioned the possibility of a trade war if the EU imposes tariffs on Chinese electric vehicles. German and Chinese ministers are scheduled to meet this week, adding to the uncertainty. Concerns over a potential trade war led traders to shun risk-heavy currencies, resulting in weakness across most Asian units. The Australian dollar’s AUDUSD pair fell 0.1%, while the South Korean won’s USDKRW pair rose 0.1%.

The Singapore dollar’s USDSGD pair saw a slight rise, whereas the Indian rupee’s USDINR pair fell 0.1%, remaining close to recent record highs.

Dollar Strength and Anticipation of PCE Inflation Data

The dollar index and dollar index futures both edged higher in Asian trading, reaching their highest levels since early May. The dollar’s strength was bolstered by stronger-than-expected U.S. purchasing managers index (PMI) readings, which sparked concerns that a resilient U.S. economy might allow the Federal Reserve more flexibility to maintain high interest rates.

Attention is now focused on the upcoming key Personal Consumption Expenditures (PCE) price index data, due this Friday. This reading is the Fed’s preferred inflation gauge and will likely influence future interest rate decisions.

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