Most Asian currencies took to the sidelines on Wednesday, with China's yuan choppy amid media reports that Washington plans to raise tariffs on $200 billion of imported Chinese goods. Overall, traders were reluctant to make any big bets on regional currencies as they waited on the US Federal Reserve's policy meeting later in the global day followed by the Bank of England's own rates review on Thursday.
A raft of Asian manufacturing surveys also showed cooling factory activity with heightened concerns the Sino-US trade dispute risks rippling across global supply chains in a blow to world growth. The dollar index, a measure of its value against a basket of six major currencies, strengthened 0.2 percent at 94.649.
Traders were cautious after media reports said the Trump administration plans to propose slapping tariffs of 25 percent tariff, instead of 10 percent, on $200 billion of imported Chinese good. Trading in the Chinese yuan was a little choppy after Bloomberg reported earlier, citing sources, that representatives of US Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He have been speaking privately as they seek to restart negotiations.
"While the US has threatened tariffs on Chinese imports, it was cushioned by news that Liu He and Mnuchin are exploring a restart of trade negotiations," said Wei Liang Chang, an FX strategist at Mizuho Bank. "The US tariffs could be seen as an opening bid for negotiations, and any negative repercussions on Asian FX could thus be discounted for now."
Besides manufacturing surveys due out in Europe later in the day, more catalysts will be on offer for traders as the Fed is expected to keep rates on hold and remain on track to tighten twice more by year-end, while the Bank of England is set to raise borrowing costs on Thursday.
The Thai baht strengthened 0.2 percent, while the Malaysia's ringgit and Indonesia's rupiah weakened 0.1 percent and 0.2 percent, respectively. India's rupee was trading steady ahead of the Reserve Bank of India's policy meeting, which is expected to raise rates, according to a Reuters poll.
China's yuan was largely unchanged after booking its fourth straight month of losses on Tuesday, as traders tried to weigh the latest reports on the volatile Sino-US trade relations.
Earlier in the day, a private survey showed China's manufacturing sector grew at the slowest pace in eight months in July as export orders declined yet again in a worrying sign amid an escalating trade dispute with the United States. Prior to market opening, the People's Bank of China lowered the daily yuan midpoint to 6.8293 per dollar, 128 pips or 0.19 percent weaker than the previous fix of 6.8165. Wednesday's fixing, the lowest since May 31, 2017, largely matched market forecasts, traders said.
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