Asia FX Slips as Uncertainty Grips Markets

The pressure on Asian currencies just won’t let up.

Monday’s session saw most Asia-Pacific currencies drift lower once again, while the U.S. dollar inched modestly higher. The culprit? Ongoing U.S.-China trade uncertainty that refuses to fade, despite repeated claims, and counterclaims, about negotiations taking place.

Instead of relief, markets got more confusion. Treasury Secretary Scott Bessent's remarks over the weekend poured cold water on any optimism, admitting he wasn’t even sure if President Trump had engaged directly with Chinese President Xi Jinping. That lack of clarity has left markets in limbo, and traders paying the price.

Dollar Finds a Floor… But It’s a Shaky One

Despite lingering near three-year lows, the U.S. dollar managed to claw back about 0.2% during Asian trading hours. The bounce was hardly a sign of strength.

Behind the scenes, U.S. economic concerns are bubbling up fast. Traders have been unloading Treasuries, pushing bond yields higher, and questioning whether the Trump administration’s aggressive tariff agenda could tip the U.S. economy into deeper trouble.

Meanwhile, Bessent’s admission that recent U.S.-China contacts happened only under International Monetary Fund channels, not formal trade negotiations, only deepened skepticism. Beijing, for its part, has categorically denied that any new trade talks are underway.

In short: the mixed messages, coupled with Trump's habit of rapidly changing his tariff stance, are keeping risk appetite firmly in check.

Chinese Yuan: Weaker, but Carefully Managed

The Chinese yuan (CNY) slipped about 0.1% against the dollar on Monday. That’s modest compared to some of its April declines, and there’s a reason for that.

The People’s Bank of China stepped in to set a stronger-than-expected midpoint fix for the day, signaling an attempt to prevent the yuan from spiraling too far amid the ongoing tariff storm.

Throughout April, China had quietly allowed the yuan to weaken to support exports battered by Trump’s aggressive 145% tariffs. Now, with fears of financial instability rising, Beijing seems more cautious, trying to engineer a "controlled descent" rather than a disorderly plunge.

In parallel, Chinese officials voiced confidence that the country would still achieve its 5% annual GDP growth target, promising additional stimulus measures if necessary.

This week’s key event? China’s PMI data, set to reveal just how much the trade war is biting into manufacturing and services.

Broader Asian FX: Caught in the Crossfire

Across Asia, the story was much the same: caution, weakness, and jittery trading.

• The Japanese yen firmed slightly, with USD/JPY slipping 0.1% as safe-haven demand remained intact. However, the yen faces a critical moment this week with the Bank of Japan policy meeting looming. Traders are watching closely to see if Governor Ueda signals any shift amid rising domestic inflation.

• The Australian dollar softened ahead of its own critical inflation data. A weak print could amplify bets on rate cuts later this year.

• The Korean won weakened 0.2%, while the Singapore dollar eased 0.1% in thin trade.

• The Indian rupee stabilized after sharp losses earlier this year, hovering around 85.35 against the greenback.

The bigger picture?

Risk appetite across Asia is deeply compromised. With no firm signs of a U.S.-China breakthrough, and Trump's tariff rhetoric heating up, traders are reluctant to chase riskier emerging-market currencies.

Final Thoughts: Traders Need to Stay Defensive

The theme for now remains simple: caution first.

For us forex traders:
Expect continued pressure on Asian currencies unless there’s a concrete de-escalation in U.S.-China tensions. The yen could remain relatively bid as a safe-haven, but the broader environment favors defensive positioning over bold plays.

For broader markets:
The fact that even small news snippets from officials like Bessent are moving markets shows just how fragile sentiment is right now. Until there’s clarity, not just promises, on tariffs and trade negotiations, traders should assume volatility will stay high.