Most emerging Asian currencies lost ground against a broadly stronger dollar on Tuesday as uncertainty crept back over US-China trade deal, while weak factory data across the globe rekindled concerns about the health of the world economy. Initial enthusiasm over the Sino-US trade truce, which triggered a relief rally on Monday, gave way to doubts about whether the two sides could come to an agreement, with President Donald Trump declaring any trade deal with China would need to be "somewhat tilted" in favour of the United States.
In a client note, OCBC Bank said "the outcome of future talks remains uncertain given Trump's flip-flop stance" plus the hawkishness of some US senators and China's "red lines". The trade-dependent Korean won had its biggest drop in nearly five weeks and lead losses in the region. Slowing global trade has affected South Korean manufacturing activity in South Korea, which shrank at its fastest pace in four months in June.
The won was also pressured by concerns over an escalating trade conflict between Japan and South Korea, which pushed Seoul's benchmark index 0.3% lower. Data released on Monday showed that production in the United States, eurozone and China also took hits due to the protracted trade war. The strength in the dollar, which remained near its highest in a week, was also weighing on the currencies in the region. The Thai baht, the best performing emerging Asian currency this year, lost 0.2%, as did the Indonesian rupiah. The Chinese yuan weakened 0.1%.
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